Victoria’s solicitors have been informed by their Legal Practitioners? Liability Committee (“LPLC”) that their mishandling of property conveyancing is one of the most costly sources of clients? negligence claims. Whether acting for vendors or purchasers, conveyancing solicitors have been warned to be especially careful regarding Section 32 Statements.
Section 32 of Victoria?s Sale of Land Act 1962 requires vendors of real estate, before contracts are signed, to give purchasers a signed statement containing prescribed information and three warnings.
The first warning is:
The use to which you propose to put the property may be prohibited by planning or building controls or may require the consent or permit of the municipal council or other responsible authority. It is in your interest to undertake a proper investigation of permitted land use before you commit yourself to buy.
Perhaps because Victoria is known as the ?Garden State?, the second warning is:
The property may be located ? where commercial agricultural production activity may affect your enjoyment of the property. It is therefore in your interest to undertake an investigation of the possible amenity and other impacts from nearby properties and agricultural practices and processes conducted there.
The third warning is shortest:
You should check with the appropriate authorities as to the availability (and cost) of providing any essential services not connected to the property.
Depending on the type of property sold, the Statement must include:
- Vendor?s details (including evidence of authority to sell if not the registered owner)
- Title details and particulars of any charge over the property
- Copy of the relevant plan of subdivision
- Details of covenants, easements and any other title restrictions (and any non-compliance)
- Planning details, particularly where zoning restricts land use
- Details of building permits during the past 7 years
- Particulars of any owner-builder?s warranty insurance
- If the vendor is an owner-builder, a recent inspection report listing any defects
- The amount of rates, taxes, charges and similar outgoings
- Notices or orders from authorities regarding fencing, road-widening, sewerage etc.
- Details of services to the property such as electricity, gas, water, sewerage and telephone.
If a vendor fails to comply with Section 32, the purchaser can cancel the contract anytime prior to settlement unless a court is satisfied the vendor acted honestly and reasonably, ought fairly to be excused and the purchaser is no worse off. As well, a vendor who knowingly or recklessly supplies false information – or does not disclose as required – commits an offence.
Although estate agents (occasionally) and non-solicitor conveyancers (routinely) prepare vendors’ Section 32 Statements, Melbourne solicitor Peter Mericka of Lawyers Conveyancing says these legal documents should always be prepared by a qualified lawyer. ?A vendor must be given competent legal advice ? in order to understand the responsibilities associated with the preparation of the Section 32 Statement,? he explains on his website where he also warns vendors that a contract is ?fatally flawed?, if an estate agent includes a special condition providing for later delivery of the Section 32 Statement.
According to Sharon Taylor of the LPLC many vendor clients believe their solicitors should be able to produce Section 32 Statements on demand. Moreover, she writes in the Law Institute’s Journal, real estate agents always want the statement “yesterday” in order to clinch the sale (and their commission). Taylor tells solicitors they cannot be blamed for preparing a hurried statement on the basis of inadequate, client-supplied information if the client is informed of and accepts the risks involved. Solicitors with impatient clients are recommended to have a standard letter along these lines:
?I confirm my advice that some weeks are required to make all inquiries and obtain all certificates necessary to ensure your statement complies. I have done my best in the time available, but cannot guarantee your statement?s validity. If it is not valid, your purchaser may withdraw and you may be liable for agent?s commission, additional legal costs, damages for misrepresentation and a possible fine. While delaying until all information is available may lose you your prospective purchaser, you should understand the risks in proceeding with the present statement.
Needless to say, Peter Mericka warns purchasers to ensure a qualified lawyer checks the statements they receive: “Because the problem with Section 32 Statements is less what they contain, and more what they should contain but don’t, sound legal advice can alert purchasers to making further enquiries regarding quality issues”.
The LPLC, concerned about purchasers? solicitors failing to detect discrepancies in Section 32 Statements (particularly whether available services are connected), points out three common liability scenarios:
- The solicitor gives no or inadequate pre-contractual advice on the Statement while clients later allege that, had proper advice been given, they would not have signed up;
- The solicitor fails to make post-contract enquiries and searches, the results of which would have given clients cause to avoid the contract;
- Post-contract searches and enquiries reveal critical information (not disclosed in the vendor?s Statement) but the solicitor fails to pass this onto clients who later claim that, had they known, they would have attempted to avoid the contract.
Anyone buying or selling real estate in Victoria should read between the lines of this cryptic caution given by the LPLC to conveyancing solicitors:
“You may not be able to stop clients from making decisions they will later regret, but you can take steps to minimise the risk that you will have to pay for them.?
Jill Ludwell, C.E.O. of the Australian Institute of Conveyancers (Victoria Division), says that members of her institute, as competent and qualified professionals, are quite capable of preparing vendors? Section 32 Statements ? and have been doing so since the Section became law.
She agrees that, because of pressure exerted on conveyancers by clients and agents, there are always risks in speeding up the process.
?The key is to produce a correct Section 32 Statement in a short time frame and, with automation of title searching and certificate collection, this has become easier,? she says.
?When acting for a purchaser,? she adds, ?a prudent conveyancer would always do a fresh title search and apply for up-to-date certificates to ensure the information is correct.?
SECTION 32 CASE STUDIES
(from the Legal Practitioners? Liability Committee)
- Estate Agent was the Vendor
When a solicitor advised a vendor client (who was a real estate agent) that preparation of the Section 32 Statement would necessitate obtaining a full title search and all the usual property certificates, the client told the solicitor there was ?no time for that?. The Statement was prepared instead on the basis of a copy Certificate of Title and rates notices provided by the client. Unfortunately, this information did not include the strata plan of the property being sold which in turn was not incorporated in the vendor?s Statement. After the purchaser rescinded, the client found plenty of time to sue the solicitor for damages.
- ?Shortform? Statement
A Section 32 Statement (prepared by a solicitor) had no water information statement attached. After the contract was signed, the purchaser?s solicitor obtained details from the relevant water authority. These included a plan showing that a declared main drain ran underneath the house. When the purchaser?s bank learned of the existence of this easement, it refused to advance its approved loan. Consequently the purchaser was unable to settle, but rescinded the contract and demanded the return of the deposit. The vendor would not agree to this but, after costly court proceedings, the purchaser was finally successful.
- No pre-contractual advice on planning overlay
When giving pre-contractual advice, the purchaser?s solicitor failed to notice from the planning certificate attached to the Section 32 Statement that the property was subject to a public acquisition overlay. This was disclosed in the second last line of the certificate. The client later found out not only that he was restricted in what he could build on the property, but also that he had paid too much because the property was de-valued by existence of the overlay.
- Easement revealed in search ? client not informed
The solicitor acted for a purchaser who was given a Section 32 Statement which was 18 months old. Subsequent to the Statement?s preparation a subdivision plan had been approved. This plan revealed there was now a 3 metre sewerage easement at the rear of the property. The solicitor did the necessary searches but failed to inform the client prior to settlement about the easement. The client was later obliged to relocate the sewerage line, but had lost the chance to either rescind the contract or perhaps negotiate a lower price.
- “Available” but not connected
The solicitor acted for a purchaser who was given a Section 32 Statement indicating that sewerage was “available”. The client assumed that ?available? meant connected. The solicitor applied for an information statement from the local water authority. A note on the back page of this statement mentioned that the property was likely to be part of a future sewerage development. The property owner at that time would have to contribute to the cost. The solicitor, who read only the front page, missed this. After settlement, the client discovered the sewerage was not connected and sued the solicitor for the difference in value between sewered and unsewered land.
- Recycled certificates
The solicitor was instructed by a vendor to prepare an urgent Section 32 Statement. The solicitor used information from his file from years earlier when he had acted for the present vendor in the original purchase. The Statement showed that the property was zoned Residential C but did not disclose subsequent changes in the zoning. The property was now affected by a significant landscape overlay. The purchaser?s solicitors did further searches, found this out and the purchaser crashed the contract.