Anyone who has purchased or sold real estate would be familiar with a Section 32 but it’s important to understand what ‘should’ be included in this document.
When selling property or land, the vendor is required to disclose various matters under section 32 of the Sale of Land Act 1962 in what is known as a Vendor’s Statement or Section 32 Statement. A defective Vendor’s Statement may result in a purchaser ending the Contract of Sale at any time prior to settlement. Vendors may also be prosecuted with a maximum penalty of 100 penalty units ($16,552).
To avoid confusion or costly mistakes we have set out below just some of the important matters that should be considered when preparing a Vendor’s Statement (please note that that the list below is not exhaustive so always consult a qualified legal partner for their advice).
1. Financial Matters:
Vendors should disclose particulars of any outgoings the purchaser is anticipated to incur once they become owners of the Property. Such outgoings usually include council rates, water rates, owner’s corporation levies and land tax.
2. Covenants, easements or restrictions on the land (Registered or Unregistered):
Restrictions on the land, such as covenants and easements, are also found on the title document where they are registered.
Covenants are usually restrictions on the use or development of the land. For example, you must not construct more than one dwelling on the land, you must use certain building materials to construct the house, you can only build three meters away from the front boundary etc.
Easements are rights over the land for specific purposes such as sewerage, drainage, shared party walls, carriageways and air rights.
Most of this information can be identified on the title or title plan, but some covenants and easements are not registered.
It is also important to disclose any failure to comply with these restrictions.
3. Owner Builder
Defects Inspection Report: The vendor will need to provide a Defects Inspection Report for all owner-builder work carried out including alterations, extensions, renovations, garages, verandas, pergolas, fencing, installing safety barriers for swimming pools and spas regardless of the value of that work. This report is only valid for 6 months so must be renewed the report has lapsed.
Domestic Building Insurance: If the value of the work exceeds $16,000 and the vendor sells the property within six years of obtaining the Certificate of Final Inspection or Occupancy Permit, the vendor will also need to provide insurance which covers non-structural defects for a period of two years and structural defects for a period of six years and six months. The insurance can only be relied upon in circumstances where the owner-builder dies, becomes insolvent or otherwise disappears.
4. Planning Scheme
Vendors have to disclose the planning scheme in which the property is situated. This includes planning zones and overlays. This provides the buyer with planning information, including in relation to planning permit requirements for the use and development of the property, including for example, whether the residential property may be used as a medical practice or other commercial use, whether the property can be subdivided etc.
Any notices issued in relation to the property must be disclosed in the Vendor’s Statement. Some examples of these are notices issued by council in relation to an illegal structure erected on the property, notices issued by VicRoads in relation to road widening, notices in relation to compulsory acquisition.
6. Building Permits
Details of any building permits issued in the previous seven years must be disclosed. Whilst not required, it is also good practice to include a copy of the building permit. occupancy permit, certificate of final inspection and domestic builders warranty insurance in the Vendor’s Statement.
7. Owners Corporation
Where there is an owners corporation in existence (usually where there is common property affecting the property), the vendor must also provide relevant disclosures about the owners corporation. Most commonly, this is disclosed by way of a owners corporation certificate issued by the owners corporation manager. They must also attach the owners corporation rules, the prescribed information for purchasers, copies of any resolutions made at the last annual general meeting and any other documents prescribed as set out in section 151(4)(b). Where there is no owners corporation manager, it is important that the vendor still complies with its disclosure obligations.
8. Growth Areas Infrastructure Contribution ("GAIC")
If the land is within Cardinia, Casey, Hume, Melton, Mitchell, Whittlesea and Wyndham municipalities and is generally located in a growth area land zoned for urban use and development, the land may be affected by GAIC and this must also be disclosed in the Vendor’s Statement.
9. Connection of Services
Only services of electricity, gas, water, sewerage or telephone that are not connected need to be disclosed. In particular, where sewerage is not connected and a septic tank is used instead. This allows purchasers to estimate connection costs post settlement.
10. Title and Plan of Subdivisions
A title search and plan of subdivision / diagram location must be disclosed.
The title search shows that the vendor legally owns the property and has the authority to sell it. The title also includes important details of the property such as the unique land description, address, activity of the title in the last 125 days and who has control over the title (if it’s an electronic title). The title also shows any mortgage, encumbrances (such as covenants), caveats and notices on the land that are registered/recorded on title which may restrict dealings on the land.
If the registered proprietor is not the vendor, then evidence of right to sell must also be disclosed. This is most commonly required in deceased estate sales.
11. Material Facts
A material fact is a piece of information that would be important to a potential purchaser in deciding whether or not to buy the land.
In determining if something is a material fact, you should consider:
- whether the fact is only known by the vendor
- the reaction of other potential purchasers to the fact, including whether knowledge of the fact may impact a potential purchaser’s willingness to buy land, and
- whether the fact results in the property being in a rare or unusual category or position.
Examples of Material facts are:
- Structural defects
- Termite infestation
- Combustible cladding
- Significant event at the property, including a flood, or a bushfire
- Illegal building structures
- Scene of serious crimes or events
If you are preparing to sell your property, be it a free standing home or unit, please contact our Property Division, complete the Vendor’s questionnaire here and call us on +61 3 9822 8588 and one of our Property Lawyers will be more than happy to assist you.
Insight written by Wendy Toura