Step 1 – Investigation Stage

Introduction

Although property is often talked about as if it is a commodity, it isn’t, as every property is unique. That’s why you need to research every property before you contract to buy. Whilst a home buyer will have their own criteria to find the right property, an investor or business will have a completely different set of measurements. What is common to both is that all property is subject to the laws of property. For the average home buyer, in most cases the legal side of things is straight forward, but not always.

The home buyer will generally only want to concern themselves with such issues as:

• Is it where I want to live?
• Does it meet my needs?
• Can I afford it?
• How much are the transaction costs?
• What are my mortgage repayments?

An investor buying an investment property looks at:

leasing potential, yield, capital gain potential, to renovate or develop, which are very different criteria from buying your own home. There are also tax implications to consider – stamp duty, GST, income tax, capital gains tax that are not always easy to assess.

Commercial or rural property will have another unique set of criteria again.

The following is given as a guide to help you in the critical first stage of finding the right property. This guide will help you in:

• Completing your own due diligence on checking the title,
• Checking the measurements of the property,
• Checking the zoning of the land,
• Understanding what easements and covenants mean,
• Determining how much the rates or owners corporation fees etc are.

We as solicitors do expect you to ask for our opinion, on any issue, before you sign an unconditional contract. Otherwise it is very difficult to re-negotiate or withdraw from the contract after the event.

In Victoria, the Vendor has a statutory duty to give a disclosure statement in the form of a Section 32 Statement but it does not cover all matters. More on this later.

Vacant possession vs subject to tenancy

One generally distinguishing feature between the home buyer and the investor is that the home buyer wants vacant possession of the property at settlement and the investor quite often is buying the property subject to a Lease.

As a home buyer, it is important to establish from the agent or the Vendor that vacant possession will be given at settlement, and the Contract will need to clearly stipulate “vacant possession”.

If the property is tenanted, check the terms of the Lease. How long has the lease to run? Are there any options to renew? How, and how often, is the rent to be reviewed? Who pays the outgoings? What’s the tenant’s history? Refurbishment, etc. We strongly recommend that you have us check the Lease.

Title

Check the title and the plans. Who is the owner? Is the property subject to a mortgage? Are there any caveats, easements or covenants shown on title and what do they mean?

Identity of the Land and Measurements

It is important that you check the dimensions of the property against the title boundaries. The reason for this is most contracts carry a special condition that says you are buying the property “as fenced”. If the fences don’t accord with the title boundaries you won’t have any redress against the Vendor. It will be left for you to sort it out with the neighbour concerned. Fences may be out a few inches or a few feet or metres. This could be quite detrimental or possibly advantageous to a developer.

If you are in any serious doubt as to identity, area, abuttals or encroachments, a survey should be made. In any event, it is essential that the connecting point of the title should be checked, as well as the dimensions of the boundaries.

The laws of Adverse Possession has well-settled principles that can work in your favour or work against you. Adverse Possession claims are covered in more detail

It should be ascertained that the property is not subject to an easement not mentioned in the contract, e.g. a drain over the property, or of overhanging eaves or spouting. The possibility of the existence of encroachments (of adjoining buildings or fences) should be borne in mind, as should whether any buildings or fences on the property being purchased encroach on any adjoining land or street. If any serious doubt arises as to any of the matters discussed above a survey will be desirable.

If there is an issue with which you have any doubt, this needs to be addressed with the Vendor before you sign a contract.

Planning

These days one cannot over-emphasise the importance of the planning codes to property law.

The use to which you can use property is all controlled by the various planning schemes that are regulated by the local councils.

Just be aware that even with residential property that is within a residential zoned precinct, there can be different categories of zoning, various overlays that affect height, site coverage, conservation, heritage, development etc. You can start by checking the planning certificate, if it is attached to the section 32 statement, or check directly with the planning department of the local council. Another place to check is www.land.vic.gov.au.

If you are considering the development potential of a residential site it is even more critical to check the zoning and the planning scheme. You need to note the zone in which the property falls. Note all relevant information on the certificate. Peruse all clauses to ensure there is no ‘hidden’ restriction or standard. Check definitions. Generally, examine that the proposal is legally permissible in the zone.

If you intend a commercial or any other use of the property, it is of the highest importance to check the zoning and the applicable planning regulations. The planning regulations describe permitted uses that don’t require a permit (as of right), permitted uses that require a permit, and uses that are prohibited.

If in any doubt, you should speak to an experienced town planner.

When you are ready simply fill out the on-line buying instruction form and we’ll take care of the rest. For further information contact us.

Easements or Covenants or Restrictions

There are legal texts just devoted to this one subject.

Easements

Easements can either be a burden on the property, or the property can benefit from an easement over a neighbour’s property. Easements can be registered on title so they are clear and defined, and these are legal easements. Or they may not be registered on title, in which case they are defined as equitable or implied easements.

With respect to residential property, drainage easements are a common example of a registered easement. Drainage easements often run along the side or rear boundary of the property and are in favour of the local water authority. But sometimes a drainage easement may run across the property, which can be somewhat restrictive for the owner to redevelop the property because you cannot build over the easement without the express consent of the water authority.

Another common easement is a right of carriageway.

Registered easements will either be noted on the Title document or by notation on the Subdivision Plan

Caveat Emptor

You need to check and study the Title and the Plan or diagram of the property, both of which ought to be attached to the section 32 statement, to know what easements or covenants or restrictions affect the property.

Less common are equitable or unregistered easements. These may exist from a right granted to a neighbour by the current or previous owner. An example may be a right of way for a neighbour to cross the land. Although this right won’t be shown on the title, it ought to be apparent from an inspection of the property, and it ought to be disclosed by the vendor in the section 32 statement.

A common characteristic of an easement is that it generally gives the right of a person to enter onto the land for the purpose contained in the easement whereas restrictive covenants affect the amenity of the land.

Restrictive Covenants:

The three most common restrictive covenants we see on title are:

1. that you cannot quarry the land
2. that you must build a house that conforms to certain standards using certain materials, for example, brick walls and roof must be either tiles or colourbond.
3. you cannot build more than a single dwelling on the property.

The first example is a historical covenant and was a device used by early developers pre-Planning Schemes to ensure a residential development remained exactly that – residential. Recent cases where Council has refused to issue a permit for a swimming pool because the use is in contravention of such a covenant have been overturned by VCAT. That is, VCAT has granted the property owner the permit to build the swimming pool. VCAT in some cases have the power to issue a permit which is at variance to the restrictive covenant.

The second is common with the modern residential subdivisions to ensure a certain standard within the subdivision is maintained. Some of these covenants can be quite extensive and in some cases you need to have your building design approved by the developer of the estate.

The existence of a single dwelling covenant is the one developers need to take special care of, as the process for removal can be long, arduous, expensive and the removal cannot be guaranteed. Often the only way to remove the covenant is application to the Supreme Court of Victoria. You could be looking at spending $20,000 at least to have such covenants removed or varied.

Building Condition – Potential Defects

The legal process of conveyancing deals with transfer of title to the land, thus concern is not given to what is built on the land. Although with buildings less than 7 years old, there are legal obligations for vendors with the disclosure of building permits, insurance warranties and with owner builder’s building survey reports.

Caveat emptor – with one caveat (combustible cladding)

The vendor is not under any obligation to tell you about hidden or patent defects in the building. You take the building as is. If the building has dry rot, termite infestation, rising damp, blocked pipes etc and you sign an unconditional contract, too bad.

If you are unable to judge these things yourself, then call in the services of a builder, building surveyor or architect before you buy. Or make the contract subject to a building inspection and pest report that does not show any serious defects.

Flooding, Road widening, Heritage, Landslip, Contamination

All the above may be an issue.

The Vendor has obligations of disclosure, but this still does not mean you don’t need to do your own due diligence. Careful inspection of the property and the surrounding area will raise flags for which you should then undertake further inquiry.

Combustible Cladding

Before you buy an apartment, you should make sure you do your due diligence – particularly with regards to combustible cladding. For more information, check with the Victorian Building Authority and read the section 32 statement carefully and review the Owners Corporation s151 Certificate. You want to review the owners corporation minutes from the previous Annual General Meetings to give you a better understanding of the building’s history.

Flooding

Certain areas in Melbourne have known problem spots for flooding. For example, parts of Elwood near the Elwood canal, or anywhere that is near the natural creek lines, may be susceptible to flooding.

Melbourne Water, South East Water, Yarra Valley Water and City West Water have maps and will issue a certificate for the property that indicates whether the property is affected by flooding. Some certificates indicate a 1 in 100 probability, which in some cases is of dubious value. The main issue with flood levels is that building costs can be increased to ensure floor levels are above the flood line.

Road proposals

VicRoads issues a certificate that indicates whether a property is affected by a road proposal. Properties on main roads may be subject to a road-widening proposal and you can generally refer to the Melways directory for any proposed freeways.

Contamination

This is not generally an issue. We recommend an environmental audit be done if buying a Petrol & Service Station site, especially if the property is to be re-developed. Its very costly to remove contaminated soil or asbestos riddled buildings.

Flats, Apartments and Owners Corporations

All subdivisions with common property will be subject to an owners corporation.

Caveat emptor

A few things to consider:

1. any special owners corporation rules
2. owners corporation fees – these can be quite high in multi-storey buildings with building insurance, lift maintenance etc.
3. sinking fund – this is to cover future capital expenditure
4. future maintenance costs
5. any litigation affecting the owners’ corporation or its members

Due diligence: Carefully read the section 151 Owners Corporation certificate which should include a copy of the last Annual General Meeting (AGM)

Rates and Outgoings

Of course, you need to check the outgoings that affect the property generally being council and water rates, owners corporation fees and land tax.

Services

Electricity, gas, telephone, water and sewerage – check whether they are connected. If not connected, check that they are available and check the cost if you have to to make provision for their connection. This is very important with rural properties.

Valuation & Negotiation

Experience is the greatest teacher for this. Detailed research is essential – research comparable sales, attend auctions, use internet sites for auction results by postcode, or engage a qualified valuer or a buyer’s advocate

When negotiating for a property ask questions of the agent such as:

• why are they asking this price?
• why are they selling?
• how long has it been for sale?
• what will they take?

Keep asking questions of the agent. Never reveal your limit to the agent. Use a friend or buyer’s advocate to bid at the auction on your behalf.

You might end up buying the property for less than what you would really be willing to pay.

Misrepresentation – High-Pressure Selling

It’s an unfortunate fact of life that not all estate agents are completely honest (the same has been said about solicitors). So don’t be caught relying on what an agent tells you. You need to check all aspects of the property and the sale, legal or otherwise, independent of what an agent may tell you.

It’s the same when it comes to the property’s value. You need to independently assess value for yourself. The practice by agents of false quoting to vendors and buyers, where the agent gives one price to the vendor and another price range to prospective buyers, would appear to be widespread in the industry.

Don’t get caught out. Get advice. Get expert advice. Use a lawyer. I have seen more than one client get into a really tangled situation, getting in over their head and all this could have been avoided with proper legal representation.

One client relied on the misguided advice of a conveyancer who was not qualified to advise. This cost her $100,000 hard earned and months of litigation. Its too late seeing lawyers to get you out of a mess when they should have been used upfront. In dealing with any lawyer, don’t forget to get a quote upfront. Yes they charge more than conveyancers.

Property Use & Development

Developers need to take special attention to town planning issues.

Town Planning Issues

It is important to find out whether the zoning and other planning provisions allow you to use the property, or to build new buildings, as you intend to. If so, you also need to know:

• whether the use or development is allowed without a planning permit;
• whether the use or development requires a planning permit;
• whether a planning permit has been granted;
• whether there are existing use or non-conforming use rights

And if the use or development is permitted:

what conditions or restrictions there may be.

Other Issues Relating to Properties

Building Permits

What building permits exist or will be required?

Requirements of the Council, Water, Sewerage, Catchment, Flooding, and Drainage Authorities, Vic Roads, Power, Gas, Telephone and other Utilities

Restrictions and requirements relating to flooding, landslip, landfill, contamination.

If there is uncertainty as to the boundaries of your land you may need to arrange for a survey.

In most cases, you should be able to satisfy yourself, in regard to the above matters, by a careful inspection of the property and the surrounding locality. If it appears that the property may be subject to any of the above problems, you should contact us immediately.

It is essential that the above issues are canvassed and investigated prior to signing a contract; else the contract needs to be subject to a planning permit. Otherwise, you are in effect buying the property as is with the risk that any proposed development may or may not proceed.

Further Advice

Bill Kosky is a solicitor with this firm who is also a qualified and experienced Town Planner. We have ready access to all Victorian Planning Schemes. We can provide more detailed advice regarding Town Planning matters.

We do not have any expertise in building matters, including building permits. However, we can refer you to building surveyors or architects who can advise you in these areas. Get a fixed quote

Remember we give fixed quotes.

When you are ready simply fill out the on-line buying instruction form and we’ll take care of the rest, including giving you a fixed price quote.