Imagine that you have sold your home, exchanged contracts and are looking forward to collecting the sale proceeds.
Then you get the call from your legal representative saying: “Your buyer wants to get out of the deal and is looking for loopholes in the contract. I thought I should inform you that I have learnt that their legal representative is checking the town planning certificate attached to the contract to see if the town plan has been changed...”
At this stage, you start to wonder about the worth of a “binding contract”.
Your plan to pay off your debts is starting to look pretty dreamlike, and you wonder whether it is too late to cancel the order for your new car.
How could a change to the town plan allow a buyer to escape? Well, in NSW, a ‘standard’ sale contract for a house or land, to be valid, must have a number of documents including a town planning certificate from the local council. If the certificate is not attached to the contract, the buyer can rescind the contract within 14 days after contracts have been exchanged and the deposit will be refunded in full to the buyer.
What’s even more scary, however, is that if the town planning certificate does not disclose the full and true story of planning constraints on the property at the date of the contract the buyer can rescind the contract, for breach of statutory warranty.
In a notorious case, the court upheld the buyer’s right to rescind the contract because the planning certificate at the time of exchange of contracts failed to disclose a change to the council’s policy restricting development on the land because it was affected by aircraft noise. This change to council’s policy happened to take place the same day that the town planning certificate was issued to the seller’s solicitor.
The failure to disclose does not give the buyer an unlimited right to rescind. A buyer still has to show that they were unaware of the existence of the problem affecting the land when the contract was entered into and that if they were aware they would not have entered into the contract.
In the court case, the buyer might have known that the land was likely to be affected by aircraft noise because it was near a major airport. But the buyer could not have been expected to know and the planning certificate failed to disclose, that the local council was likely to restrict the development of the land because of aircraft noise.
So the buyer was able to rescind the contract and recover the deposit. The seller was left not only with the loss of the sale but also all the costs of trying to enforce a contract that was unenforceable.
The case illustrates the hazards of conveyancing and helps to explain why you need experienced legal assistance when you are buying or selling real estate.