Sellers need to avoid giving buyers an easy “out” of the sale contract. One of the most common of these is if an encumbrance on the property, such as an easement, is not disclosed to the buyer in the contract.
The seller has an obligation to make the buyer aware of all easements related to the property. This is usually done by disclosure in the contract. Seller’s please note – your obligation to disclose is not dependent on whether the easement is listed on a title search or not. If an easement exists, you should disclose it.
But what actually is an encumbrance or easement? And what happens if it isn’t disclosed?
This article will demystify these issues.
First up, let’s explain what an easement is.
An easement can best be explained as the right for anyone to use a part of a land in a certain way, regardless of whether that person is the landowner or not.
Easements come up very commonly in situations including;
An easement is a very good example of an “encumbrance”. An encumbrance is something that affects the use of the land.. Other encumbrances include registered leases or mortgages.
An easement either ‘burdens’ or ‘benefits’ the land. In either case, the easement should be listed on the property title, though this is not always the case.
An easement ‘burdening the land’ means that the easement area is actually on that particular Lot and is for the benefit of someone else.
An easement ‘benefiting the land’ means that the easement area is located on someone else’s property and your property gets the benefit of that easement.
Here there are two lots. There is an easement area over Lot B. Say the easement was for access.
In this example, the easement would burden Lot B for Lot A’s benefit. The practical implication is that the owner of Lot A can pass over the easement area located on Lot B.
An ‘easement in gross’ is simply an easement which is for the benefit of an entity which is not a neighbouring property owner. Examples of this are the service easements to Energex, Unitywater or the local Council mentioned above. Often these easements were required as a condition of a development approval.
While most easements are registered on title, it does not mean that they always are.
For example, stormwater and sewerage mains passing under or over your property may not be registered but still must be disclosed on the contract.
Another example is power lines over a large rural property. Sometimes those power lines are so old, that there is no easement registered on the title. However, it is still an encumbrance that should be disclosed because it is affecting the use of the land.
Often, Councils will have the infrastructure plans in their records, so owners can find out more information about easements and other encumbrances which may exist over their property.
If you are selling, it is strongly advisable to conduct searches if you are not certain about easements, encumbrances or anything else that may affect the land. It is better to get the information and make proper disclosure, then risk losing your sale.
Buyers usually carry out Council and other searches, and will often discover undisclosed encumbrances for themselves.
YES! Every single easement, or encumbrance must be disclosed in the Contract.
If a buyer finds out there is an easement or encumbrance on the property that wasn’t disclosed, they may be able to terminate the contract. Not only that, but the buyer can seek to recover damages for their losses against a seller. This can cost a lot of time, money and heartache that sellers do not want to go through.
The buyer may be able terminate in situations where the easement or encumbrance will interfere with their use or enjoyment of the property.
Standard Contracts for a house and land or unit, have a section where any easements or encumbrances on the property can be listed.
Full details of the easement must be disclosed; whether it is an easement in gross, burdening easement or an easement benefiting the land, registered or unregistered.
FC Lawyers can go over your contracts before you sign them to make sure that you are aware of your obligations as a seller and your rights as a buyer.
You can contact our property law team today to discuss any concerns or queries you may have.