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Undisclosed Encumbrances, Seller Beware!

Undisclosed Encumbrances, Seller Beware!

You may have heard the Latin phrase – caveat emptor – “Buyer Beware”, but when does “Seller Beware” become relevant?

As a seller you must disclose in the Contract all title encumbrances which will remain after settlement, and you must be in a position at settlement to hand over a title free from undisclosed encumbrances to the buyer.   The importance of disclosing encumbrances can’t be overstated.  Failure to disclose unregistered title encumbrances may entitle a buyer to terminate the contract up until settlement, due to the defect in title if an encumbrance is discovered that wasn’t divulged, even if the contract has become unconditional. The buyer may also recover damages, including costs.

Encumbrances don’t always appear on a title search and may not be apparent without diligent searches. Encumbrances are defined in the Contract as “including unregistered and statutory encumbrances” and come in many shapes and forms. They can benefit the land, they can burden the land, can be registered and unregistered. They can be granted through statute or by written agreement.

The most common example of an unregistered title encumbrance is an easement granted by statute to certain suppliers of services for infrastructure required for the maintenance of a home, such as water, electricity, stormwater, internet & telecommunication cabling. Providers such as the local Council, energy companies and telecommunications companies are conferred a right under statute to build and maintain services under or over the land.

As a Seller, how do you avoid making this possibly fatal mistake, leaving yourself open to potential unwanted ramifications when selling your property?  One way is by undertaking a free Dial Before You Dig search for information on the location of underground infrastructure to ensure that you have a comprehensive knowledge and understanding of what services are located on your land which would be the subject of a statutory easement.

In order to best protect your interests as a seller and avoid the effects of non-disclosure, we recommend that all sellers seek advice before entering into a contract.