In the Sydney market, it’s fairly common to find home-owners selling a property with unapproved alterations. Why? They may not have known they needed Council approval, or they may simply have decided the approval process would take too long and cost too much.

But what do unapproved alterations mean for the buyer? How do you know they’re there, and what options do you have if you do know?

Finding out about unapproved alterations

There are several ways you may find out about unapproved alterations:

The vendor contract

The Contract makes a warranty from the seller to the purchaser that there is no matter that would justify the making of an upgrade or demolition order in relation to the property. So, if the vendor has done unapproved work, or if they know renovations done before they moved in were not approved, its in their best interest for those to be disclosed, otherwise they may be breaching that warranty.

Obviously, the vendor doesn’t want to highlight a potential issue, so lack of approval is usually not mentioned clearly. But there may be a clause saying that the purchaser accepts the home on an ‘as-is’ basis. As experienced conveyancers, we identify these clauses and dig deeper.

Your conveyancer or solicitor’s discovery questions

Good conveyancing practice also includes testing vendor disclosure.

So whatever the contract says, we will always ask the vendor’s solicitor a range of questions including:

• Has the vendor taken out any renovation work to the property?
• Is the vendor aware of anything that is unapproved on the property?
• Is the vendor aware of anything that would cause an upgrade or demolition order to the property?

We ask these questions as part of our initial contract review.

This is especially important with auctions, since there is no cooling off period.

Council records

Council records are a great way to identify discrepancies between the property you’ve viewed and what is officially approved. We always ask clients purchasing a property whether they want to get Council records.

It’s not expensive, but it does take time, usually 14 to 28 days depending on the Council. It’s one reason we like to have a two-week window before auctions. It doesn’t take us that long to review the contract, but it can take that long to get records.

If you’re buying by private treaty, we’ll ask you about Council records during the cooling-off period.

Managing communication

A really important point is to make sure you communicate through your solicitor or conveyancer, rather than directly with the vendor. This is not just to give us more work, this is to make sure that everything significant is included in the contract.

We had one case where our purchaser had communicated directly with the vendor and we knew nothing about it. The vendor was a solicitor managing his own sale.

The day before settlement, we received a communication saying, ‘I haven’t been able to get the final occupation certificate. It’s due next week.’

This was a complete shock to us. We knew nothing about an occupation certificate. We had asked specific questions:

• Was there any work done to the property? He mentioned upgrading a staircase.
• Was there anything that needed warranty insurance? He answered no.
• Was there anything that would warrant an upgrade or demolition order? He answered no. But if there’s no occupation certificate, Council can require further work or worst case demolition.

We asked our client who said, ‘Yes, he’s done some alterations on the house and the shed’s not approved. He told me the day of the auction. It’s OK, he’s working on it.’

But it wasn’t OK. If she’d proceeded to settlement without an occupation certificate, she risked never getting an occupation certificate. If Council reviewed the property and required further upgrades, or demolition, she would have to do that at her cost.

In the end, the certificate of occupation came through and the sale settled a week late. But that was only due to our last-minute intervention. Without it, our client would have been exposed.

Remember, your conveyancer is there to help you and protect you. Communication is vital!

Why would you still consider buying once you know there are unapproved alterations?

We see two type of buyers when it comes to unapproved alterations.

First home buyers are generally not interested. They’re about to get in debt for the rest of their lives, and they are very cautious in moving forward. If the vendor isn’t interested in getting the work approved, they’ll usually drop out.

More seasoned purchasers take a different approach. They may investigate costs of getting approval and take it on themselves, or they may go back and renegotiate with the vendor or the real estate agent.

It is the purchaser’s decision. We just make sure they consider the situation when they want to sell. At that time, they will be looking for the same type of purchaser as them, someone who is okay with unapproved alterations.

Then we assist and support in any negotiations.

Know all your options

Your options depend on the contract and on the stage of sale you are at.

If everything is disclosed in the contract, there’s no renegotiation at any stage. That’s one reason we like to review contracts early and certainly a reason we do thorough discovery. It’s better to negotiate before exchanging, or to walk away before auction, rather than find out once you’re committed to purchasing.

At the other end of the scale, if you have already exchanged and you can prove that the vendor did not disclose everything they knew, you have many courses open to you.

• You can walk away, without penalty or financial loss. Although the vendor may dispute your reasons for termination, so you may end up in court.
• You can renegotiate in a whole range of ways:
  • Reduce the purchase price
  • Require the vendor to obtain approval or make good
  • Ask the vendor to include services such as a full clean or repaint of the property before settlement

It depends on your personal circumstances and preferences. Just be aware that any action you take is likely to cause delay in settlement. If you terminate, you are back at the beginning of your search for a new home. In a rising market, that might not be in your favour.

It’s always beneficial to know about unapproved alterations as soon as possible, so you have time to explore your options. And remember, your conveyancer is there to help you achieve what’s best for you. So talk to us and we’ll do all we can to help!

An unapproved alteration which worked to the buyer’s advantage

In one case we were involved in, the vendor had not made full disclosure.

The purchaser did thorough due diligence, including getting Council records.

The Council information included a development application, which had been approved, but no final occupation certificate. On closer examination, the plans on the development application did not match what was actually there when you walked through the property. That explained the lack of occupation certificate!

Now, the vendor was fully aware that there were unapproved changes to the development application, but had not disclosed that. So the purchaser could have terminated and walked away – but they wanted the property. The property had been sold at auction, so all other purchasers had moved on. The vendor had few options left but to negotiate, from a weak position.

In the end,

• The purchase price was reduced by $100,000
• The vendor had to organise an occupation certificate – at their own cost. That involved
  • Getting the plans draft for what was built by an engineer.
  • Organising a surveyor;
  • Organising landscaping work around a deck extension;
  • Obtaining Council approval;

The whole process took several months, but the purchaser was willing to wait. And why not? She got the property she had viewed at considerably less than she had bid at auction.

Key points

Buying any property is a risk. It’s a big transaction. And it’s quite possible you’ll find your dream home, but it’s got some issues. But unapproved alterations don’t have to mean the end of the deal. Here’s what you can do to minimize the downside for you:

• Know that the vendor is required to give full disclosure.
• Do your own due diligence (or get a conveyancer who will do it for you).
• Be prepared in advance before you exchange – especially for auctions.
• Be open to negotiation. But know what’s non-negotiable for you.
• Be completely honest with your conveyancer. We work for you, not against you. We’re here to help you get what’s best for you.