Full disclosure regarding body corporate information is an essential step in the sale of an existing or proposed lot of land in a community titles scheme.
Despite its importance, there is a concerning disregard among some sellers and their agents in performing this duty. Failure to comply with the legal requirements surrounding disclosure statements can lead to disastrous consequences for sellers and real estate agents alike.
It is therefore important that both sellers and agents have a good understanding of the requirements prior to entering into a contract of sale.
What are the disclosure obligations?
A seller of an existing or proposed lot on a community titles scheme must ensure compliance with two key disclosure requirements:
- A signed and substantially complete disclosure statement; and
- Any further disclosure with respect to statutory warranties.
While bodies corporate will typically provide the seller with information for a disclosure statement, the onus is on the seller and their agent to ensure that the information contained is complete and accurate.
Disclosure statements must be given to the buyer before they enter into a contract, and must contain:
- The name, address and contact number of relevant parties including the body corporate manager and, for lots within a specified two-lot scheme, the person responsible for keeping body corporate records;
- The amount of annual contribution paid by owner of the lot;
- Details of any improvements on any common property for which the owner is responsible;
- A list of the body corporate assets required to be recorded (or for a specified two-lot scheme, assets over the value of $1,000);
- Whether there is a committee, or manager, engaged to perform the functions of a body corporate committee; and
- Any other information prescribed under any relevant regulations.
The disclosure statement must be ‘substantially complete’ in order for the seller’s obligations to be discharged. While this may mean that some minor elements of the statement could be left incomplete, information regarding annual contributions, improvements for which the owner is responsible and any relevant regulations that apply will be considered essential elements.
There is no requirement that a disclosure statement be in a particular form. However, it is recommended that agents adopt the standard disclosure statement form to match the contract, for example the REIQ form. Use of the standardised form ensures that all required information will be included.
By entering into a contract for sale, the seller gives a number of warranties in relation to the body corporate disclosure statement and information, unless expressly stated otherwise in the contract.
Specifically, the seller warrants that, at the date of the contract:
- There are no latent or patent defects in the common property or body corporate assets other than:
- Defects arising through fair wear and tear;
- Defects disclosed in contract; and
- The body corporate records do not disclose any such defects; and
- There are no actual, contingent or expected liabilities of body corporate that are not part of its normal operating expenses; and
- The body corporate records do not disclose any such liabilities; and
More broadly, the seller warrants that there are no circumstances in relation to the affairs of the body corporate likely to materially prejudice the buyer.
These warranties cover information that is not in the disclosure statement. It is inadequate to merely state ‘refer to disclosure statement’ in this section of the contract.
What are the consequences of non-compliance with these obligations?
Where the seller has failed to provide the buyer with a disclosure statement that is signed, substantially complete and accurate, the buyer has the right to terminate the contract prior to settlement. This right to termination will also arise where the buyer is unable, despite reasonable efforts, to verify the information contained in the statement. The buyer must provide written notice of termination within 14 days of them having received their copy of the contract.
Similarly, if a statutory warranty is breached, then the buyer will be entitled to terminate the contract. In relation to proposed lots, the buyer’s right to terminate will be available until no later than 3 days before they are otherwise required to complete the contract, while for existing lots, buyers will have until 14 days after receiving their copy of the contract.
Importance for Real Estate Agents
A breach of either the disclosure statement requirements or implied warranties will also result in commission not being paid to the seller’s agent.
It is therefore essential that the seller’s agent ensures that any disclosure statement obtained from the body corporate is checked thoroughly, and that further investigations are made to ensure that any concerns regarding the implied warranties are included in the contract itself.
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