Things That Must be Disclosed when Buying a Lot in a Scheme

If you’ve decided to purchase a residential or commercial property within a Strata Scheme, make sure you receive all the information you are entitled to, and need to know.

Sometimes not having the right information can cause issues or anguish, even cost money, as a Canberra motorcycle mechanic found out when he purchased an industrial unit in Burleigh Heads in 2018.  After settlement, his lawyer informed him that the Bylaws prohibited anyone from running a motorcycle workshop in the complex.  This should have been disclosed before settlement.  The mechanic has had to sell the unit and has filed a $165,225 lawsuit against the law firm.

Although a conveyancing solicitor will do the searches and provide you with most of what you need to know, a wise buyer will have a checklist of things to ask, to ensure their legal team has been thorough.

The Section 206 disclosure statement

The 206 Disclosure Statement, signed by the seller (or the seller’s agent), informs you, the potential buyer, about body corporate matters in general and specifically relevant to the lot you’re intending to purchase.

The 206 disclosure statement must be provided before the contract is completed, and inform you of all these things:

• Name, address and contact telephone number for the secretary of the Body Corporate
• The contact details for the Body Corporate Administrator if one has been appointed to manage the Body Corporate records.
• Annual levy contributions for the Lot you’re buying. It should show the full levies payable for the current financial year, including administrative and sinking levies.  It should also include insurance levies, special levies and levies pursuant to exclusive use allocations. Some buildings have multiple levies to disclose.
• Details of improvements on common property for which the owner is responsible
• The body corporate assets required to be recorded on a register the body corporate keeps

An inadequate disclosure statement can be a trigger for a buyer to cancel a contract.

Disclosure of property history

The real estate agent, as the seller’s representative is required to disclose details of material facts which may affect the purchaser’s decision not to proceed, or the history affects the value of the property in a fundamental way.

This is a tricky one.

On the one hand, there is no legal requirement to disclose information about violent deaths, suicide, drug labs, etc in the relevant property law legislation in either Qld or NSW. On the other hand, failure to disclose this information could lead to a court setting aside the Contract and awarding damages in favour of the purchasers.  It can also lead to prosecution for breaching relevant consumer protection laws, as happened in Sydney with the Sef Gonzales case

REIQ best practice guidelines state that agents who are aware of information about a property which could materially impact whether someone buys or rents it, then they should err on the side of caution and disclose that information.

We recommend checking with your legal team to ensure they’ve asked the agent direct questions about the history of the property.

Disclosure of property approvals

Your legal team will do searches with the local council to determine if there are any approval applications (or lack of) for projects within the property, although this usually only applies to houses, not Schemes, where the Body Corporate is responsible for approving these before they get to Council.

The types of structures which need approvals include car ports, garages or sheds, retainer walls, driveways, fencing and dwellings (secondary dwelling or conversion to dual occupancy).

If these types of structures have been added to the Scheme or the Lot after initial construction and council inspections, and relevant approvals have not been obtained, there could be serious implications for you, the Buyer.

Disclosure of disputes and legal cases

The agent is required to disclose whether or not the property is affected by any neighbourhood disputes, and if there is any application or order made by Queensland Civil and Administrative Tribunal (‘QCAT’) in relation to fences and trees.

The Neighbourhood Disputes Act states, “if a person is selling land affected by an application or order, the person must give the buyer a copy of the application or order before the buyer enters into a contract of sale for the land unless the person has a reasonable excuse.

Do your homework and ask questions

We recommend taking the extra steps to review recent Body Corporate minutes and financial statements and ask questions.

1. Has the Body Corporate submitted the Combustible Cladding Checklist with Safer Buildings Website? Does the building have cladding that will need replacing?
2. The Sinking Fund – is it adequate for future capital works?
3. Are the levies for administration and maintenance adequate or excessive? Where are the levies being spent?
4. Are the levy payments in arrears and affecting the body corporate cashflow?
5. Are there any building defects identified and will they be addressed by the developer or builder, or will they need to be rectified and paid for out of the Sinking Fund?
6. Are there any specific limitations or requirements within the Scheme bylaws which could affect your purchase decision?
7. Are there any disputes going on which could affect your property or property value?

Investing a large amount of money in property should always be done with care, and due diligence.  When buying into a Strata Scheme, it’s a little like investing in a business.  You need to know that it is being well managed and there will be no nasty surprises down the track.

At Tower Body Corporate, we provide 206 Disclosure statements and any other records requested promptly, so that prospective buyers have the information they need to make the right decision.

Related Tag: Body Corporate Managers Gold Coast