Well, it is more paperwork… but it is important!
Queensland legislation requires sellers of units to disclose certain matters to buyers. The amount of disclosure that is required will depend on whether the property you are purchasing is completed, or if it is to be completed at some stage after the contract has been signed.
The seller’s disclosure contains information that will both directly and indirectly affect you once you become the owner of the property. Most contracts do not allow buyers to make objections to matters disclosed by the seller once they have been signed. Therefore, it is important for sellers that the information within a disclosure statement is accurate, and important for buyers that they read and understand the disclosure materials to make an informed decision about the purchase.
What information should I get in a disclosure statement?
For existing property, the seller is required to disclose things such as:
- contact details for the people who manage the body corporate (usually the body corporate secretary and the body corporate administrator, if any).
- The amount of annual contributions payable to the body corporate (admin fund, sinking fund and insurance contributions).
- Improvements to the land which the lot owner is responsible for (such as a BBQ installed on common property).
- Body corporate assets.
For proposed new units or townhouses the seller is required to disclose things like:
- A disclosure plan showing the proposed lot, which must be prepared by a surveyor.
- The proposed amount of annual contributions payable to the body corporate and a draft budget.
- Details for any proposed body corporate administrator (including the proposed engagement agreement).
- Details for any proposed letting agent or caretaker (including the proposed engagement agreement);
- Details of proposed body corporate assets.
- Proposed Community Management Statement (which includes the rules to govern the scheme).
- Details of any other agreements that the body corporate will enter into and copies of this agreement (such as an agreement that allows the body corporate to acquire electricity in “bulk” and on-sell to owners).
What happens if the information is incorrect or information is missing?
A buyer may be able to terminate a contract for purchase if the disclosure statement is –
- Not signed by the seller.
- Not substantially complete; and/or
- Inaccurate and the buyer would be materially prejudiced if required to settle because of the inaccuracy.
For this reason it is imperative for sellers that the information is accurate, and imperative for buyers that you undertake suitable searches to confirm the information is accurate.
Can the seller change their disclosure?
For existing units, no.
For units that are to be completed in the future, the seller may provide an updated disclosure in what’s called a ‘further statement’. If the further statement contains changes that “materially prejudice” a buyer, the buyer may have a right to terminate the contract.
However, a buyer’s right to terminate for changes in a further statement expires 21 days from the date that the further statement is received. Buyers should ensure that they engage a lawyer to fully review any further statement and advise on any changes prior to this time.
What is material prejudiced?
There is no black and white answer as to what changes will constitute material prejudice, and the changes must be considered from the perspective of the buyer.
- For sellers: it is important that you receive advice on the risk of materially prejudicing buyers before you issue a further statement.
- For buyers: it is important that you receive advice on your position before purporting to terminate, or before the 21 days expires.
There can be drastic consequences for either party if they get this wrong.
So, is it more than just more paperwork!
Disclosure Statements are definitely documents that for sellers need to be prepared correctly, and for buyers should be read and understood before signing a contract.
However, for buyers it is worth remembering that disclosure statements are not required to include all information which might be relevant or affect the property.For example, disclosure statements are not required to include information about:
- proposed special levies to be raised in the future; or
- pending litigation and/or disputes between lot owners or between lot owners and the body corporate.
To get all these nitty gritty details, a buyer needs to order a body corporate records search.
We recommend that, if possible:
- sellers ensure that they obtain advice on any body corporate issues, so that these may be covered off in special conditions if required; and
- buyers make contracts for the purchase of units or townhouses conditional upon the buyer’ due diligence enquiries (see more info here), or at least conditional upon a satisfactory body corporate records search being obtained.
If you have any questions about disclosure statements, purchasing units or townhouses, please contact our team of property and conveyancing lawyers today.