Group 12
August 3, 2023

What you need to look out for when buying a house

A conversation with P&B Law partner Lindsay Kotzman.

Buying a house is one of the largest financial and emotional transactions we make in our lives. That’s why it’s essential you recognise and understand every aspect of the transaction. Doing so can mean the difference between buying your dream home or buying a property with constant issues.

We recently caught up with Lindsay Kotzman, a partner at P&B Law, to discuss matters around buying property, in particular, the critical things you need to consider before you sign the contract.

In the rush of excitement of buying a home, what are some of the key factors you need to be aware of before signing on the dotted line?

Lindsay Kotzman: It's very important to plan properly. Get your ducks in a row. Obviously, make sure that you have the money organised, which for most people is the pre-approval of a loan from a bank.

It’s also really important you familiarise yourself with the transaction. The best way to do that is to read the contract. In particular, what's called the Section 32 document. That's a document pursuant to Section 32 of the Sale of Land Act.

This section has compulsory disclosures that a vendor or a seller of property has to give to the buyer when they're putting a property up for sale. It contains all sorts of things: rates, whether there are any orders on the property, the building history of the property, whether there are proposals for road extensions over the property, land tax, and the planning zoning of the property.

Does Section 32 disclose any claims over ownership of the property that other parties might have, like a second mortgage or a disputed claim by an ex-partner?

Lindsay: It does. The basis of the Torrens title system that we work under in Victoria is that the current title always reflects the status of the property and the various claims on the property. For instance, the person who's selling the property (the vendor) will almost always be named as the registered proprietor on the title.

Under that will be any mortgages, which could be granted to lenders or other people that have had transactions with the owner, and potentially also caveats, usually associated with money.

But it could be people claiming an interest because they've contributed to the original purchase of the property, and these may or may not be disputed. The critical issue here is that after you pay the money at settlement, you get what’s called a ‘clear title’. Clear title means you’re the only person registered at the time the transaction settles.

From there, if you've actually borrowed money, your bank may register a mortgage over that property as well.

In the rare instance that the government has plans that might interfere with the property, how can you manage that?

Lindsay: There's a variety of different certificates, which are usually contained within Section 32. The Section 32 provisions require certain types of disclosures. Most people choose to disclose by providing or obtaining and providing a relevant government certificate. That government certificate will talk about whether building permits have been applied for and obtained and whether they’ve been satisfied in a granted certificate of occupancy.

When it comes to planning, that certificate will control the nature of any rebuild that you might want to carry out on the property. For instance, the height requirements, setbacks, and those sorts of things. They come within the planning zones for each property.

If the title nominates the dimensions on the property, do you need to do your own assessment of whether the property, in fact, reflects that title?

Lindsay: It's always wise to measure the property from the surveyor's marking point closest to the property to ensure the property dimensions on the title actually match the physical property dimensions. Very often, there are problems, especially for more established properties where the surveyor's markings were not as specific and well-placed.

The bottom line is, if the lot—the physical boundaries—has been in place for at least 15 years and fenced along the same fence lines for those 15 years, you’re effectively guaranteed the property is yours, even though it may not completely line up with the actual title boundaries disclosed on the title.

Buying property at auction

Australian real estate agents love selling domestic property by auction. As a purchaser, what legal matters must you be aware of in the heat of that situation?

For example, do you lose the cooling-off capability that you might have in a private sale? Is there anything else you need to be aware of when you participate in an auction?

Lindsay: If the property is sold by private treaty and not by auction, you generally have a right within three days to cool off, bar some exclusions. That exclusion includes an auction, so you don't get the benefit of cooling off if the property goes to auction.

There's a whole range of issues—such as laws or regulations—in relation to an auction that a purchaser should know about. The auction rules are usually included as part of the contract or the disclosure statement. Also, you're not allowed to harass the auctioneer. You’re there to bid on the property, and you're required to sign immediately after the auction is completed.

In the past, if you were the successful bidder at an auction, you wrote a check for the deposit. Given most people don’t write checks anymore, how do you settle a deposit following a successful bid?

Lindsay: Usually, the agent will give you the details of their trust account, and you organise a transfer immediately after the option. Most contracts stipulate that the vendor can terminate the contract if the deposit isn’t paid within 24 or 48 hours from the date of the option.

If you are fronting up to an auction and it's subject to finance, what must you consider under that scenario?

Lindsay: As a general rule, an auctioneer will not accept a bid that is conditional unless those conditions have been pre-approved by the auctioneer before the auction goes ahead. The purpose of an auction is that it's meant to be a level playing field for all bidders.

The vendor presents the contract in Section 32, and unless you state you want extended terms for settlement (or you’re bidding for someone else), you’re expected to sign the contract if you’re the successful bidder.

Property buyer rights

Property in Victoria is sold on a caveat emptor basis. Given this basis, what are some of the less obvious factors to be aware of?

Lindsay: First of all, caveat emptor means buyer beware, so it's up to the buyer to look at the contract and understand any encumbrances that might be on the contract. For instance, there could be easements, which is somebody having the right to pass over your piece of land. If there's a laneway down the side that gives access to another property, there might be covenants on the title also, which say you’re only allowed to build to a certain height or that you're only allowed one dwelling on the land. Those are two common covenants.

The other thing you would ordinarily need to know about is whether anybody else has any claims on the property. You also need to check if there are any environmental issues or contamination issues. Most contracts will say the purchaser is not relying upon any representations made by the vendor, and any representations or promises made by the vendor prior to signing the contract are not valid or binding on the vendor.

What’s really, really important—and I don’t mean in an auction sense—is that if an agent makes any promise about the property or the transaction, it must be written into the contract. The contract is the ruling document, above all else. It’s impossible to say, "Oh, but the agent promised me this," or "the agent promised me that." Unless it's in writing, you'll never be able to enforce any promises that the agent makes on behalf of the vendor.

If you're buying a relatively new property (up to ten years old), what entitlements do you have to collect on the original builder's warranty as the next owner of that property?

Lindsay: The important thing is to get a copy of the builder's warranty so you can identify who the builder was and who the insurer was. These details should be disclosed as part of the section 32 document. These details aren’t always disclosed, and when they’re not, it can be quite a problem trying to chase it up if there are structural problems with the house.

It's also important to note that the builder's warranty insurance is only to a maximum of $300,000, and it will usually last for about six and a half years after the certificate of occupancy is granted.

On the day you move in, you discover the vendor has removed something you believe should have been included and passed on to you. What are your rights as to what you might think are built-in conveniences in the property?

Lindsay: It's very, very important to distinguish between what are called fixtures and chattels. A fixture is something that is fixed to the property and is intended to be permanent. A chattel is something that can be easily removed and taken away. A fridge, for instance, is a chattel. In most contracts, there’s a section called goods to be sold with a property, and if you were expecting the fridge to be left at the property, it should be written in that goods section of the contract.

Again, it's very important that you list all of the chattels that are not fixed to the property that you believe are being sold with the property. It’s a common issue to hear a purchaser say, ‘The agent promised me this (X) would be left in the property,’ but in fact, it’s not written into the contract, and the vendor takes it. So, it’s essential that things like chattels are listed in detail so that if the vendor takes them, you have recourse (albeit limited) to get them back.

Can you give an example of when you’ve been able to forewarn a client or solve one of these issues recently?

Lindsay: A few weeks ago, an agent had inserted into a contract that an oven and stovetop would be in working order by the day of the settlement. It was a high-quality oven, but on settlement day, the touchpad wasn’t working properly. As a result, the buyer asked if they could deduct $8,000 from the purchase price to cover a new oven and stovetop.

What we managed to do was to get a quote for restoring the oven and stovetop to new condition at a cost of $1,000. Ultimately, the purchaser was forced to settle on an allowance of $1,000. That’s one of many examples that come through our office every week.

Renting your property

You often hear horror stories about tenants ceasing to pay rent and how difficult it is for a landlord to do anything about it or eject the tenant. From a landlord’s perspective, what can be done in these circumstances?

Lindsay: There are two very, very different circumstances. One is when you're dealing with a residential lease. That comes under the jurisdiction of the Victorian Civil and Administrative Tribunal (VCAT).

Residential leases are governed by the Residential Tenancies Act. If you need information about the Residential Tenancies Act, you can look at Consumer Affairs Victoria; they have lots of information regarding the rights and obligations of landlords of residential leases.

Are there precautionary steps you can take when setting up the residential rental agreement or other practical steps to minimise your chances of going down that path?

Lindsay: I think it’s like when you engage in a commercial relationship. You want a sense that the tenant can be trusted, that they’re a person of good character who’s not going to trash your property. It’s a matter of having confidence that this person will abide by the lease contract they’re signing.

Obviously, references are important, too. I believe agents share references about various tenants they’ve dealt with.

As Lindsay said, so many of these things are often overlooked in the heat of the moment. What’s clear is that with a healthy dose of patience and due diligence, you can get all your ducks in a row and move forward with the purchase you’ll hopefully enjoy for many years to come.