Buying Properties with unapproved renovations

Buying Properties

Buying properties with unapproved renovations or structure

Many properties may have some forms of renovations or additions done such as a granny flat, pergola, shed, swimming pool, as well as possible conversions a garage into a living room. Under section 52A(2)(b) of Conveyancing Act 1919, Vendors are required to warrant that there is no building or structure included in the sale of the property that is subject to “upgrading or demolition order” of the local Council.

Breach of statutory warranty section s52A(2)(b)

If there is a breach of s52A(2)(b) and a Vendor also fails to disclose unapproved works or structures on the property at the time of entering the contract, the Purchaser is entitled to rescission and the repayment of the deposit at any time before settlement date Regulation 16(1)(b) and 17 of the Conveyancing (Sale of Land) Regulation 2010, provided that conditions under Regulation 16(1)(3) are met.

In Huang v Ceylan [2018] NSWSC 306, the Vendor advertised for sale a three bedroom unit.  In fact the development approval provided for the apartment to contain two bedrooms.  A wall had been constructed along an open “media room” thereby enclosing it to create a third bedroom. The Purchaser discovered the unapproved work after exchange of contract. The Supreme Court in that case found the Vendor had breached his disclosure obligations under s52A(2)(b) and ordered the return of the Purchaser’s deposit.

Waiver of statutory rights

If a Purchaser was informed of any unapproved works or structures on the property and decides to enter into the contract, the Purchaser acknowledges that they are buying the property as how it is and loses the right to rescind for breach of vendor warranty by affirmation, waiver or election. However, they should be aware of the following consequences:

  1. The local Council may, at any time, require the rectification or demolition of improvements erected on a property without its approval irrespective of who built the improvements or when those works or structures were erected;
  1. Costly rectification works as a result of an upgrading, demolition or work order issued by Council;
  2. Difficulties trying to sell the property to subsequent buyers.

Buying Properties

Title Insurance

Purchasers, either know or do not know whether a work or structure on the property was not approved, have an option to take out Title Insurance for financial protection. The insurance has a one off fee and will safeguard Purchaser for the lifetime of owning the property against illegal or incorrectly built structures and other issues.

If you are looking to buy a property, it is recommended for you to consult a conveyancer or solicitor before signing the contract or at least in the cooling off period. That way any issues about the property can be discussed and a contract can be amended or withdrawn during the cooling off period. Our Property Team can assist with this process.

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