Once you’ve found your ideal home, the next step is usually to do some due diligence about the property and check the contract. In Victoria, the seller is required to disclose a lot of information about the property and this means property contracts and vendor statements can be overwhelming. You should always engage a conveyancing lawyer to check your contract before you sign anything, but if you want to do some initial due diligence yourself, here are some tips at what to look out for in the contract and vendor statement.
What’s in the contract?
A real estate agent may only fill in a contract prepared by a lawyer or licenced conveyancer, or a contract approved by the Victorian Legal Services Commission or other professional association. A common form of contract for residential real estate is the contract approved by the Law Institute of Victoria and Real Estate Institute of Victoria (LIV/REIV Contract).
The reference schedule of the LIV/REIV Contract is mostly self-explanatory, and includes the obvious details like the property description, the vendors and purchasers’ names and addresses, purchase price and the settlement date. We recommend that you pay particular attention to:
- Goods sold with the land: if you’re expecting any chattels to be included in the sale, they need to be listed in this section or attached as a schedule to the contract. Similarly, any excluded fixtures should be listed.
- Payment of deposit: a deposit of up to 10% is usually requested but this is negotiable and can often be paid in instalments, e.g. a small deposit on signing and the balance at a later date, e.g. once finance has been approved.
- GST: the GST section is not usually completed or relevant for existing residential properties. Please seek further advice if any of the boxes in the GST section have been completed.
- Lease: you are entitled to vacant possession of the property at settlement unless the words “subject to lease” appear in the box next to the lease section. If these words appear then the property is sold with a tenancy and you should ask for a copy of the tenancy agreement before signing the contract.
- Terms contract: this section is not usually completed for standard purchases.
- Loan: if you need to obtain finance to fund the purchase then then this section should be completed, and you should give yourself at least 21 days to obtain a loan approval.
- Special conditions: this section will usually always include the words “special conditions” meaning special conditions apply to the contract.
General conditions and special conditions
The previously prescribed general conditions of contract are well established however it is common to see several special conditions added to the contract by the vendor. The most recent form of the LIV/REIV Contract includes precedent special conditions 1-12 that can be ticked if applicable. You should pay particular attention to any additional special conditions and seek legal advice if you’re unsure of the effect of these special conditions.
If you have not obtained a building and pest report prior to entering into the contract, we recommend including a special condition making the contract conditional upon satisfactory building and pest reports, and if using the most recent version of the LIV/REIV Contract, precedent special conditions 11 & 12 can be ticked so that these conditions apply. There must be a major building defect or infestation to be able to end the contract under these precedent special conditions.
What to look out for in the vendor statement
Before a property is sold, the vendor must provide you with a vendor’s statement that must disclose any of the relevant information set out in section 32 of the Sale of Land Act. The vendor’s statement must be factually accurate and complete. If the vendor’s statement contains information that is false, incorrect or incomplete then you can rescind the contract (except if the vendor acted honestly and you are in substantially as good a position as if the vendor statement had been accurate). Section 33 of the Sale of Land Act also requires the vendor to attach the prescribed form of the due diligence checklist to the vendor statement.
There are various forms of vendor statements but all must still comply with section 32 of the Sale of Land Act. The different forms usually include the same information but it can be in a different layout. A common form of the vendor’s statement is the form approved by the Law Institute of Victoria and Real Estate Institute of Victoria (LIV/REIV Vendor Statement).
Vendor statements for the sale of an existing residential property on usual contract terms must include at least the following disclosures:
- Financial matters
The vendor must disclose the particulars of any rates, taxes, charges or other outgoings. This information can be disclosed in various ways, e.g. as a total amount, or by attaching rates and outgoings notices, or by attaching searches from the relevant authorities. If searches are not attached, vendors will often overestimate the disclosed total amount to avoid a defective vendor statement.
If the dwelling was constructed by an owner builder, or there was building work by an owner builder in excess of $16,000, in the preceding 6 years, then the vendor must provide particulars of the home warranty insurance. We recommend that you ask the vendor for a copy of the insurance policy if it’s not included in the vendor statement. An owner builder vendor must also provide a defect report obtained no more than 6 months prior to entering into the contract.
- Land use
The vendor must disclose a description of any easement, covenant, or other restriction affecting the land and particulars of any failure to comply with them. If these types of restrictions are registered, they are usually disclosed by attaching copies of the dealings on title to the vendor statement. However some restrictions are created on the registration of the plan when the property was originally subdivided and accordingly you should check the copy of the registered plan for any restrictions like easements and covenants. If the restrictions are unregistered, copies of the documents should be attached to the vendor statement. Easements and other encumbrances to the water authorities are often not registered on title and so you should insist on the vendor attaching a water information statement to the vendor statement. It is also common for properties in newer estates to be subject to unregistered building covenants however these are often missing from vendor statements.
The vendor must also disclose:
- if the land is in a bushfire prone area, details of which are usually included in a building certificate or a bushfire area search provided by Land Services Online;
- if there is no access to the property by road;
- planning information such as the name of the planning scheme and authority, zoning and overlays, usually provided by attaching a planning certificate to the vendor statement.
The vendor must disclose details of any notices or orders from government or authorities that affect the land. In practice, vendor’s lawyers or conveyancers often put the onus on the vendor to disclose these rather than ordering the searches. We recommend that you ask the vendor to attach a Vic Roads certificate and the EPA certificate to the vendor statement so you can check whether or not the property is affected by compulsory acquisitions such as proposed road widening, or chemical contamination. We recommend you ask the vendor for a building certificate to check if the local authority has issued any show cause notices or orders regarding demolition of unapproved structures.
- Building permits
The vendor must disclose the particulars of any building permit issued in the preceding 7 years. This is usually disclosed by attaching a building certificate to the vendor statement. A building certificate will show details of any building permits or final inspection certificates issued in the preceding 10 years. We recommend that you ask the vendor to attach a building certificate to the vendor statement if you think there has been any work done in the preceding 7 years. If a building permit has been issued but there is no final inspection certificate, you should undertake further due diligence about how to obtain a final inspection certificate for the completed works. You can also order a building plan documentation search from the local authority that will include a full history of the building’s records held by the local authority.
- Owner’s corporation information
If the property is affected by an owner’s corporation then the vendor must disclose the information prescribed by the Owner’s Corporation Act. This is usually done by attaching a section 151 owner’s corporation certificate to the vendor statement.
- Non-connected services
The vendor must specify if any of the following services are not connected to the land (and operational): electricity, gas, water, sewerage, telephone.
- Evidence of title
The vendor must attach (for registered land) a copy of the register search statement and a diagram location that identifies the land. This is done by attaching a title search and a copy of the registered plan. If the vendor is not the registered owner, e.g. the vendor is an executor of a deceased estate, then the vendor must provide evidence of the vendor’s right to sell the property (e.g. a copy of the will or grant of probate). We recommend that you also ask for a copy of the previous transfer dealing to be attached to the vendor statement, as it will reveal if any additional land should be transferred e.g. a car park space or storage area.
General comments on what to look out for in a vendor statement
Many of the disclosures under section 32 of the Sale of Land Act require the vendor to provide particulars. Particulars does not mean copies of the documents. Particulars are often incomplete or inaccurate and the only way to check these are accurate is to obtain the relevant property search or certificate. It is common for vendors and their legal representatives to try to reduce their costs by not attaching some of the property searches or certificates.