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Unapproved structures – the great unknown

09 Oct 2015

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  • Conveyancing
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The existence of unapproved structures is an issue that is faced by many potential buyers of properties. We very regularly see inspection reports on properties that disclose a number of unapproved structures (common ones like pergola, sheds and even pools sometimes!). The reality is, unapproved structures are more common than you’d think (which is why you must carefully read any building inspection report).

For many potential buyers, the existence of unapproved structures may concern them greatly… and for good reason!

Caveat Emptor

“Caveat emptor” (which is Latin for “let the buyer beware”) is the basic principle on purchasing a property. Practically, this implies that as a buyer of a property you need to carry out inspections, make enquiries and do all that is necessary to satisfy yourself as to the condition of a property.

According to the Civil Law (Sale of Residential Property) Act 2003, contracts for sale in the ACT are required to contain a building and pest report (BPR). There are exceptions if it is a Class A unit or a brand new property and for certain types of retirement village contracts.

Normally any unapproved structures would be listed in the compliance report that is found in the main BPR. When structures are approved, a certificate of occupancy and use is issued and the practical implication of this is that the structure is safe for ‘occupation’ and ‘use’.  An unapproved structure does not have a certificate of occupancy and use and is therefore an “unknown”.

If there are unapproved structures listed in the compliance report then a buyer must consider the following matters:

Is the Seller in the process of getting this approved in time for the final sale of the property?

The seller of a property may have already lodged an application with the Planning Authority to obtain approval for the unapproved structure. It is prudent as a buyer to request copies of any paperwork showing that the approval process is underway.

The certificate of occupancy and use may become available before the scheduled settlement date ( the date when the property is legally transferred and the full purchase price is paid to the Seller) and that is obviously a good outcome.

However, sometimes the certificate may not be issued in time for the settlement date. In such a case, buyers need to ensure that before exchange of contracts, a special condition is inserted into the contract to cover any delays in the issue of the certificate. The special condition should confirm that the process of approval is underway and make provision for the retention of some of the seller’s money at settlement if the certificate is not available at that time.

It is important that there are time limits for the retention of this money set out in the special condition, because moneys should not be held in trust accounts indefinitely.

If after a certain period of mutually agreed time the certificate has still not be issued then the special condition should have a provision allowing the release of the money to the buyer so that they can then take full responsibility for following up the approval.

As a rough costs estimate, getting a single unapproved structure approved could cost up to $10,000.00, so it a pricey affair and the retention of the funds ensures that the Buyer is not left high and dry in case of any delays in the approval process.

What if the Seller has no intention of obtaining certificates of occupancy and use for the unapproved structures?

The seller of the property may have no intention of obtaining certificates for any unapproved structures. This means that the buyer takes the property ‘as it is’. The risk of this situation, though low, is that if the government has the power to compel the owner (which will be the buyer if this happens after settlement) to comply with relevant planning law and obtain certificates for the structures. If this happens in the future, this would of course be at the buyer’s own cost.

Buyers may ask for a reduction in the purchase price because of the unapproved structures present on the property, and use this as a bargaining tool. Of course, it is up to a seller how they respond to such a request.

Conclusion

Unapproved structures are commonly found in properties and the above pointers should provide some guidance on how a buyer can respond in a similar situation. If you need assistance with a property transaction, contact our experienced conveyancing team today.