risk management for conveyancing: council enforcement … · 2017. 5. 12. · council enforcement...

Presented by Paul Watkins

General Counsel, Australia Stewart Title Limited

“Conveyancing Transformed”

Victoria

Risk Management for Conveyancing:

Council Enforcement Powers &

Defects in Title

Council Enforcement Powers: Risk

Framework

Clients purchasing property with improvements (house,

garage, carport, shed, swimming pool, granny flats etc)

Generally, improvements form part of the title

Generally, improvements form part of the subject matter of

the sale

Improvements subject to Building & Planning Laws

Improvements subject to Council Compliance &

Enforcement

Council Enforcement Powers:

Unapproved & Non-Compliant Building

Works

What is unapproved/illegal building work?:

Building work which has been carried out without

obtaining a building permit

Building work which has been carried out contrary to

approved plans or contrary to conditions of any

building permit

Archicentre 2011 Illegal Building

Works Statistics

NSW 29%

VIC 33%

QLD 22%

WA 21%

SA 32%

TAS 34%

Common Types of Unapproved Building

Work Removal of load bearing walls

Illegal drainage/wiring

Addition of rooms in roof space

Addition of balconies, decks, pergolas

Conversion of structures into habitable rooms

Non-compliance with permits – unapproved

alterations to approved structures

Who is to blame?

Legislative Regime for Building Approval

in Victoria

Building Act 1993 - Section 16

Offences relating to carrying out building work

(1) A person must not carry out building work unless a building permit in relation to the work has been

issued and is in force under this Act.

Penalty: 500 penalty units, in the case of a natural person;

2500 penalty units, in the case of a body corporate.

(2) A person must not carry out building work unless the work is carried out in accordance with this

Act, the building regulations and the building permit issued in relation to that work.

Penalty: 500 penalty units, in the case of a natural person;

2500 penalty units, in the case of a body corporate.

(3) An owner of land must not permit building work to be carried out on that land unless—

(a) a building permit in relation to the work has been issued and is in force under this Act; and

(b) the work is carried out in accordance with this Act, the building regulations and

the building permit issued in relation to that work.

Penalty: 500 penalty units, in the case of a natural person;

2500 penalty units, in the case of a body corporate.

(4) A building practitioner or an architect who is engaged to carry out building work must ensure that—

(a) a building permit in relation to the work has been issued and is in force under this Act; and

(b) the work is carried out in accordance with this Act, the building regulations and

the building permit issued in relation to that work.

Penalty: 500 penalty units, in the case of a natural person;

2500 penalty units, in the case of a body corporate.

(5) Subsection (3) does not apply to an owner if the owner has engaged a building practitioner or

architect to carry out the building work on that land.

(6) Subsections (1), (2), (3) and (4) do not apply if the building work is exempted by or under this Act

or the regulations.

Council Enforcement Powers Building Act 1993 Part 8 Enforcement

S106 – “Building Notices” issued by a municipal building

surveyor or a private building surveyor

S111 - “Building Orders” prohibits occupation, carry out

building work, evacuate building

S118 - “Contravention of Emergency Order or Building Order”

penalty of up to 500 units for an individual (approx. $74,000)

S121 – “Work May Be Carried Out by Municipal Building

Surveyor” and S123 allows for the surveyor to obtain costs

from the owner or to put a bond or undertaking against the

land

Council Building Notices/Orders

Yarra Ranges Council

Banyule City Council

Whitehorse City Council

LaTrobe City Council

South Gippsland Shire Council

City of Greater Geelong

Wyndham City Council

Unapproved Building Work: Vendor

Disclosure at Common Law

Vendor is only liable to disclose ‘latent’ defects in the

vendor’s ‘title’

‘Caveat emptor’(let buyer beware) applies to all other

matters

Latent defect= one which a purchaser (or expert

employed on its behalf) is not reasonably able to discover

on inspection of the property

Patent defect= a defect visible to the eye or which a

purchaser inspecting the property with reasonable care

ought to discover

Defects in Title v Defects in Quality

A defect in title affects the vendor’s ability to pass an

unencumbered title to the property

It covers those matters within the vendor’s knowledge

which detract from his right to convey the estate he has

agreed to sell or which prevent him from conveying his

title free of encumbrance’ ‘: Holland J in Dormer v Solo

Investments [1974] 1 NSWLR 428

By contrast, a defect in quality affects the quality (value/use)

of property but not vendor’s ability to pass title, such as

structural issues, termites, contamination, noise and

even whether a property is haunted.

Unapproved Building Work: Defect in

Title?

Fletcher v Manton [1940] HCA 32

Maxwell v Pinheiro (1980) 46 LGRA 310

Borthwick v Walsh (1980) 41 LGRA 144

McInnis v Edwards (1986) VR 16 161

Carpenter v McGrath (1996) 40 NSLR 39

Falcone v Mentyn (2003) TASSC 79

McInnes v Edwards per Justice Kaye

“the material time for the purpose of conveyance for

determination whether a defect in title exists is at the

time when the parties entered into their contractual

relationship. The existence then of an order made or

direction given in the exercise of a statutory power

imposing a burden or charge on land or the

improvements thereon constitutes a latent defect in

title. However, the mere existence of circumstances

which create the possibility or probability or risk that

the property will at a future date be subject to a

statutory charge or burden does not constitute a

latent defect in title.”

Timing is Everything!

At time of signing a contract– existence of

unapproved building work means a potential

future order is a defect in quality and therefore

need not be disclosed at common law

After contract date– unapproved building work

which subsequently attracts a building order will

constitute a defect in title

Vendor Disclosure: Contract

Section 32 of the Sale of Land Act 1962

Contract of the Sale of Real Estate - Condition 21

‘Notices’ – allocates liability to the purchaser for

post-contract notices

Risk Environment in Victoria

Limited Vendor Disclosure – Building Permits obtained in the last seven (7) years

Limited Warranties – no warranty regarding compliance with building permits

Risk of Council Orders after Contract Signed?

Limited Remedies

Many clients rely on s 32 Statement – make no further enquiries with Council

Clients take risk of unapproved building work

Title Insurance in Victoria

Stewart Title opened office in Victoria in 2004

– Residential, Strata, Commercial, Rural, Vacant Land

Developed a large claim portfolio over last 13 years

Most common source of claims:

Unapproved Building Work

Boundary Encroachments

Outstanding Rates/Levies

Defence of Title

Recent Examples

Non-Compliance with Building Permit

Insured purchased a house for $1,650,000.

House situated on waterfront.

Following settlement, substantial storms affected locality

resulting in water penetration to windows/sliding doors

Investigations revealed all windows/sliding doors installed

not the correct specification for locality

Council required all windows/sliding doors to be replaced

to bring dwelling into compliance with building permit

Claim Resolution

Stewart Title arranged for removal and replacement of

approx 12 sliding doors and windows

Total cost of window replacement $96,524.25

Ensured no further breach and no further action from

Council

Premium Paid $1058.75

No Excess

Non-Compliance with Subdivision Consent

Insured purchased vacant land for the purposes of

constructing a dwelling.

The land has been recently subdivided and was subject to a

number of conditions of consent.

One of the conditions related to the location of the

“crossovers” – one of the “crossovers” should have been

removed but wasn’t.

Insured discovered that the “crossover” they intended to use

breached the conditions of consent –house plans based upon

existing ‘crossover’.

Claim Resolution

Stewart Title engaged a planning expert to provide advice

and options

Ultimately due to the traffic conditions, the “approved”

crossover had to be retained.

House plans had to be altered to ‘flip’ the house to

accommodate the approved crossover

Claim cost approx. $8,000

Premium Paid $274.73 – No Excess

Non-compliant building work in the media

Non-compliant building work in the media

Non-compliant building work in the media

Unapproved additions

Insured purchased a house in 2014. House approximately 40

years old

A number of “additions” had made over the years, including a

spa room addition

A few years after settlement, insured decided to rent the

property. Engaged a property agent who advised spa

required a safety barrier

Insured disputed this and approached Council. Council

identified spa room unapproved. Also confirmed that spa

required a safety barrier!

Claim Resolution

Stewart Title engaged planning and building consultants to

provide advice and options

Spa room non-compliant and not structurally sound.

Spa room required demolition

Insured covered for demolition and “make good” costs and

loss in market value

Claim cost over $50,000

Premium Paid $363.00 – No Excess

Unapproved Conversion

Insured purchased B&B in rainforest area in 2013 – well

established and good reputation

Purchase Price over $1million

B&B also included gallery and tea rooms

Insured had intention of making improvements after

settlement

Insured organised own design group to start plans

Submitted plans, Council checked their records

Council issued Notice, permitted use and disability access

main concern

Non-compliant Verandah &

Unapproved Kitchen & Living Areas

Insured purchased a residential property in 2015

Insured approached Council for approval to build a

swimming pool

Council advised Verandah not compliant with

approval

Following further inspections discovered kitchen and

living areas also not compliant

Claim Resolution

Instructed Building Consultant to inspect property

Substantial non-compliance with Building Regulations

Stewart Title indemnified Insured for costs of

rectifying unapproved structures

Costs exceeded $23,000.

Encroachment of Unapproved Structures on

Council Land

Insured purchased property for $1.6 million

Sold the property in 2013

Discovered significant encroachment of retaining

walls/gardens/drive-way

Encroachments subsequently disclosed to Purchaser

Purchaser threatened to terminate contract/sue for

damages

Claim Resolution

Stewart Title negotiated Deed of Settlement with Buyer.

Stewart Title agreed to negotiate acquisition of Council

land or licence from Council on behalf of new Buyer.

If Council land could not be acquired Stewart Title agreed

to fund demolition and rebuild of encroaching structures

and pay loss in market value (for land ‘lost’)

Stewart Title engaged law firm to manage the process.

Council refused to sell or licence land

Conclusion

Title insurance covers risks which predominantly fall outside of the safety of the Torrens System

Risk management involves implementing controls to reduce or eliminate risk.

Innovation – new ways to offer value to clients, adapt to changing market, competitive edge

Nothing replaces the exercise of due care and skill

Title Insurance adds an additional layer of protection

QUESTIONS?