The Importance of Special Conditions in Contracts of Sale
As Melbourne becomes more densely populated, it is likely that property disputes with neighbours will increase. If you are an owner of a lot within a subdivision, this could often mean that the relevant owners corporation could also become involved in a neighbour dispute.
When involved in a dispute involving a neighbour and/or owners corporation, each party should obtain legal advice to ensure that your position is properly ascertained and is based on a correct understanding of their legal rights and obligations. Engaging a solicitor to communicate on your behalf can also help to take the emotion out of such disputes, and lead to a faster and more amicable resolution.
If you are thinking of selling a property which is the subject of a neighbour or owners corporation dispute (whether or not it is a litigated dispute), you should try to resolve the dispute before selling, and not expect to be able to simply walk away from the outstanding issue by selling the property. However, if you do choose to sell with an unresolved dispute, it is extremely important that when preparing the Contract of Sale there are special conditions drafted into the Contract clearly stating the rights and obligations of the vendor and purchaser in relation to the subject matter of such dispute.
A situation in which special conditions may need to be drafted into a Contract of Sale may be when an owners corporation has issued a breach notice to the owner for the owner failing to comply with a requirement of the owners corporation, e.g. they have unlawfully enclosed a portion of the common property to use as a private garden. If the breach is not rectified, then the owners corporation may take action against the current owner of the lot, even if the current owner is not the party who initially misappropriated the common property. The breach notice will need to be disclosed in the Contract of Sale and will be evident to an intending purchaser of the property.
As a purchaser, you should not assume that the problem will be remedied before settlement of the purchase, and the Contract may preclude the purchaser accepting the property “as is” with the dispute unresolved. Therefore, a purchaser should also consider a special condition to be drafted into the Contract to state that the parties are not obligated to settle until the breach has been rectified. A purchaser should also ensure that the price of the property is reflective of the state of the property after the breach has been remedied. In the example given above, this would allow a discount based on the fact that the property does not come with a garden. A Purchaser should also keep in mind that they may incur expenses in relation to the Owners Corporation’s breach notice.
As a vendor, you would not want the purchaser to have an unfettered right to refuse to settle the Contract. Therefore, a vendor could seek to include a waiver in respect to the subject matter of the dispute. In the alternative, a vendor could insist on some limitation to be placed on the Purchaser’s right to refuse to settle, so that a vendor is not entirely at the mercy of a third party who may be required to co-operate to remedy the breach.
When considering a Contract of Sale for a property which is the subject of an unresolved legal dispute, it is essential that this be dealt with in the Special Conditions of the Contract so that both parties know their rights and obligations in respect of this from the outset. Negotiating such Contracts requires technical expertise, as does reviewing a Contract to identify such issues. For many people, buying property is the biggest financial investment which they will make, and therefore it is important that it pays off. Seeking legal advice prior to entering into a Contract of Sale can provide valuable peace of mind and avoid complications down the track which could end up costing you a great deal of money and stress.