Vendor and Purchaser 2

Tutorial Questions

Tutorial 2

Modules 2

Module 2: Inquiries and Affectations

Question 1

At what stage must a proposal reach before it can be said to have come into existence?

Problem Question 2

The minutes of a meeting on 3 November 2020 of department heads of a public authority with the power to resume land and the relevant State Minister have been leaked to the media. The minutes read as follows:

"that the possibility of one or more of the waterfront houses with private jetties in Smith Street, Smithville being resumed in order to build a resort for stressed and overworked public servants and politicians should be vigorously pursued"

Your clients entered a contract to purchase no 11 Smith Street (which is on the waterfront with a private jetty) on 5 December 2020 and seek your advice on whether they can rescind the contract based on the leaked minutes of the meeting.

They are not only concerned with the prospect that their property may be resumed but also with the prospect of a neighbouring property being resumed and them having to live near any such proposed "retreat". They have told you that they believe that the quality of the neighbourhood would be seriously affected by the presence of so many public servants and politicians.

The authority refuses to make any further comment saying only that the matter is "under investigation". What advice would you give your clients?

Reference Material

02 JAN 2021 PAGE 333

Conveyancing Law and Practice Volume 2

11 Vendor's Duty of Disclosure

11Vendor's Duty of Disclosure

[11.10] OBLIGATIONS OF VENDOR [11.10] The obligation to convey

[11.20] Caveat emptor and the obligation to disclose

[11.30] GENERAL LAW DUTY OF DISCLOSURE [11.30] Types of defects

[11.40] Latent and patent defects

[11.50] Defects in title and quality

[11.60] Vendor's general law duty of disclosure

[11.70] Planning restrictions and the general law duty of disclosure

[11.80] Warranty of fitness must be express

[11.90] Summary of a vendor's limited obligations of disclosure under the general law

[11.100] CONTRACTUAL DUTY OF DISCLOSURE

[11.100] Practical consequences of caveat emptor doctrine

[11.110] Anderson v Daniels

[11.120] Vendor's contractual duty of disclosure under the 2005 standard form contract

[11.130] STATUTORY VENDOR DISCLOSURE

[11.130] Transactions covered by the Vendor Disclosure legislation

[11.140] The Vendor Disclosure legislation and options to purchase land

[11.150] PRE-CONTRACT INQUIRIES

[11.150] Need for pre-contract inquiries

[11.160] Form of inquiries

[11.170] Arguments against making inquiries

[11.180] REMEDIES AGAINST ILLEGAL OR NON-COMPLYING BUILDINGS

Extract from Diane Skapinker and Patricia Lane, Saleof Land in New South Wales: Commentary and Materials(5th ed, Lawbook Co., 2010), Chapter 4.

OBLIGATIONS OF VENDOR

The obligation to convey

[11.10]

The fundamental obligation ofa vendor of land is to convey or transfer to the purchaser the unencumbered title to all property forming part of the subject matter of the sale (as discussed in Chapter 8). In a contract for the sale of land,the vendor will usually be fully aware of all the matters that affect the property, including any matters that might affect the title to the land, as well as matters that affect the owner's ability to use or enjoy the land, such as planning restrictions or

other prohibitions on use. This chapter concerns the extent to which the vendor is required to disclose to a prospective purchaser the state ofthe title, and any other mattersaffecting the property. The extent of the vendor's obligation to disclose will depend on the nature of the matter which is said to affect the property, and the source of the obligation to disclose, whether it be common law, the contract of sale or statute.

Caveat emptor and the obligation to disclose

[11.20]

Historically, it was the responsibility of the purchaser to make inquiries concerning the ability of the vendor to convey a good title to the property agreed to be sold, and as to the quality of the property.This process of inquiry was assisted by the vendor's obligation to provide a proper abstract of the title (see Chapter 9), and to answer the purchaser's requisitions on title or as to conveyance (see Chapter 16). The vendor's duty to disclose defects in the property was limited to the duty to disclose latent defects in title (see below [11.60]). As a result, purchasers had to conduct extensive inquiries before entering into the contract as to matters which were not covered by the vendor's obligations of disclosure, such as impediments to the ability to use or enjoy the property which did not arise from some defect in title, and the entry into the contract could be delayed for a considerable period after the parties had reached agreement in principle on the terms of the bargain. This delay meant that in a rising market the vendor could reach agreement in principle to sell the land to another purchaser, at a higher price, and either enter into a contract with the second purchaser, or use the second agreement as a means to persuade the earlier purchaser to increase the price offered for the property. This practice, described as "gazumping" attracted the attention of legislatures, and concern about the practice led to statutory regulation of the vendor's duty to disclose. The statutory regime is considered at [4.150] (Skapinker), but first, the position at common law will be considered.

GENERAL LAW DUTY OF DISCLOSURE

Types of defects

[11.30]

The common law classified the matters that might affect the property in two ways: (a) latent or patent defects; and

(b) defects in title or defects in quality

which meant that a defect fell into one of four categories - latent defects as to quality, or title, and patent defects as to quality, or title. The vendor's common law obligation to disclose defects varied depending on the classification of the defect, making it important to classify correctly the type of defect. In the case of contractualor statutory obligations to disclose, the relevant inquiryis whether the matter falls within the contractual, or statutory, description of the matters the vendor is required to disclose.

Latent and patent defects

[11.40]

A "latent defect" is one which a purchaser is not reasonably able to discover on an inspection of the property (Carlish v Salt[1906] 1 Ch 335; Beyfus v Lodge[1925] 1 Ch 350).

By way ofcontrast, a "patent defect" is one which is visible to the eye, or which a purchaser, inspecting the property with reasonable care, ought to discover. There are limits to the purchaser's obligation to investigate every minor feature of a property in order to uncover defects which are not readily discoverable byreasonable examination of the property by experts, and even if a defect might have been discoverable by extensive investigation, it is nevertheless likely to be held

to be a latent defect if it could not reasonably have been discovered on an inspection of the property. As Parker J statedin Shepherd v Croft [1911]1 Ch 521 at 529, in relationto an underground watercourse channelled under the land through pipes:

I do not think that any one who inspects a property with a view to its purchase can reasonably be expected to look into every hole which the gardener has made in the lawn, even if he notices the existence of such a hole at all.

Whether a particular defect is latent or patent is a question of degree. Courts appear reluctant to regard anything other than fairly obvious defects as patent defects (Yandle and Sons v Sutton[1922] 2 Ch 199 at 210).

Defects in title and quality

[11.50]

Any matter which interferes with the vendor's ability to perform the obligation to convey the title promised under the contract is referred to as a defect in the vendor's title. So, a defect in titlerelates to some defect in a vendor's title to the subject matter of the sale, which may include title to improvements erected on the land which form part of the subject matter of the sale (Chapter 8). Defects in title were described byHolland J in Dormer v Solo Investments Pty Ltd[1974] 1 NSWLR

428 at 433(extracted at [4.110] (Skapinker)) as: "... matters ... which detract from [the vendor's] right to convey the estate he has agreed to sell or which prevent him from conveying his title free of encumbrances".

Some defects in title impair the vendor's right to convey (or transfer) any estate at all (for example, where the title of the vendor depends on incomplete possession). Other defects may arise when the vendor's estate is subject to encumbrances such as an easement or restrictive covenant. Not every right enforceable in relation to the property will amount to a defect in title, particularly where the right arises under regulatory statutes such as the Local Government Act 1993 or the Environmental Planning andAssessment Act 1979 in respect of matters such as non-complying use, although these matters will be likely to amount to a defect in quality.

A defect in qualityaffects the quality of the land, rather than a vendor's title to it. Although a defect in quality may affect the value of the land or the use to which the land or improvements on the land may be put, such a defect does not affect the ability of a vendor to pass an unencumbered title to the land. Examples ofdefects in quality includes matters relating to the use or zoning of the land and physical defects in the land or improvements on the land (such as structural defects, pest infestation or land contamination). In Eighth SRJ Pty Ltd v Merity(1997) NSWConvR 55-813, Young J noted that (at 56,384):

Even if the defect in quality means that the house is positively noxious such as the situation where it was infected with small pox there will beno right to rescindthough the courtmay decline specific performance.

Defects in title or quality may be either latentor patent. The distinction between latent defects in title and patent defects in title is not always easy to make. Latent defects in title are undisclosed interests of third parties in the land which are not discoverable on reasonable investigation of the land or of the title, and include, for example:

an undisclosed public or private right of way(Yandle and Sons vSutton [1922] 2 Ch199;

Ashburner v Sewell[1891] 3 Ch 405);

an underground culvert for water running across the land (In rePuckett and Smith's Contract

[1902] 2 Ch 258);

sewer mains (or other pipes, connections or structures of supply authorities of services) situated under the surface of the land (Torr v Harpur(1940) 40 SR (NSW) 585; Drummoyne Municipal

Council v Beard[1970] 1 NSWR 432, extracted at [15.90]; Micos v Diamond(1970) 92 WN(NSW)

513).

In Adolfson v Jengedor Pty Ltd(1996) NSWConvR 55-775 at 55,994, extractedat [16.240], Young J

stated that:

[I]t should not be thought that merelybecause there is a sewer pipe or an easement for drainage over the property that there is of necessity a defect in title. One must look at the contract, the land and the effect on the land of the sewerage pipe. In the instant case, there are not statutory rights of any sewerage authority in the land, there is no effect on any building ... The problem, accordingly, cannot ... be classed as defect in title ...

While this statement may be true in relation to sewer pipes on the land it may be too widely expressed to extendthe analysis to"an easementfor drainage overthe property" which necessarily confers rights in the land of the owner of the dominant land.

Vendor's general law duty of disclosure

[11.60]

Under the general law, a vendor of land is only obliged to disclose to a purchaser latent defects in title- that is, "matters within his knowledge which detract from his right to convey the interest he has agreed to sell" ( Dormer vSolo Investments Pty Ltd[1974] 1 NSWLR 428 at 433, extracted at [4.110] (Skapinker); Tsekos vFinance Corporation of Australia Ltd[1982] 2 NSWLR 347 at 355, extracted at [4.120] (Skapinker)). In respect of all other defects, whether as to title or quality, the rule is caveat emptor or "let the buyer beware".

In an ordinary vendor and purchaser situation, there is no fiduciary relationship between the parties when they are negotiating the terms of the contract. Nor is the contract for the sale of land in that exceptional class of contracts (such as contracts of insurance) which require the parties to disclose material matters as part of the duty to act in utmost good faith. There is no duty on either vendor or purchaser in a land sale to disclose to the other all material facts of which either is aware and which materially affect the value or the subject-matter of the sale (Terrene Ltd v Nelson[1937] 3 All ER 739 at 744).

At common lawmere silence by a vendor does not constitute fraud, unless thereis active concealment of a defect (W Scott Fell & Co Ltd v Lloyd(1906) 4 CLR 572;Anderson v Daniels(1983) NSW ConvR 55-144, extracted at [11.110]). However, in certain circumstances a vendor's failure to disclose a matter affecting the property which is not a title defect, may constitute misleading or deceptive conduct within the meaning of s 52 of the Trade Practices Act 1974 (Cth) or s 42 of the FairTrading Act 1987 (see Chapter18). The vendor may also be liable for erroneous or careless replies to a specific question asked by the purchaser, even if the vendor is under no obligation to answer it (see Chapter 16 on requisitions).

It accordingly follows that there is no general law obligation on a vendor of land to disclose:

patent defects in title (Becker v Partridge[1966] 2 QB 155);

latent defects in quality;

patent defects in quality; or

any proposal which might at some future date affect the vendor's title to the land (Dormer v Solo

Investments Pty Ltd[1974] 1 NSWLR 428; Tsekos v Finance Corporation of Australia Ltd[1982] 2

NSWLR 347).

A vendor's general law obligation to disclose latent defects in title is of particular importance in relation to old system title land which may be subject to easements, covenants or other interests which were not created byregistered instruments or which may have been rendered effective

through long periods of user. Although it is less relevant for land held under Torrens title, where legal interests are created by registration, as will beshown below, even such land may besubject to latent defects in title.

Planning restrictions and the general law duty of disclosure

[11.70]

Landowners are not permitted to use their land for any purpose they choose. For example, an owner of a suburban parcel of land cannot build an office, factory or a high-rise block of flats on it. This is because there are statutory controls on the development (or use) of land. Environmental planning in New South Wales is governed by the Environmental Planning and Assessment Act 1979which requires landowners wishing to develop their land to obtain development approval for the particular development from their local councils. Development approvals are considered in more detail in Chapter 14.

A restriction on use imposed by planning laws is generally not a defect in title but a defect in quality only. Chilwell J in Harris v Weaver(1981) ANZ ConvR 52 at 54-55, considered the nature of a requirement for road widening and of a building line restriction relating to the property in the following terms:

So far as town planning restrictions are concerned the generally accepted view is that they are matters of quality not of title unless they prevent the giving of title ... In the present case the vendor agreed to sell and the purchasers to purchase an estate in fee simple in the land. That estate has at all material times been available to the purchasers. The title is unencumbered. The title to the estate in fee simple and possession are both available to the purchasers. The town planning and [ ... building] requirements do not affect either title or possession.

There are some dicta suggesting that a town planning restriction can constitute a defect in title (see Pemberton Australia Pty Ltd v CPS Services Pty Ltd(1990) NSWConvR 55-537 at 51,510) but the New South Wales Court of Appeal has confirmed that town planning issues are defects in quality only ( Carpenter v McGrath(1996) 40NSWLR 39, extractedat [14.90]). It is always important, in analysing whether a particularaffectation is a defect in title or quality for the purposes of determining whether the vendor has breached the duty to disclose, to consider what the vendor has promised to convey to the purchaser. For example, a town planning restriction, which affects a purchaser's entitlementto occupy or use the propertylegally, might constitute a defect in the vendor's title to improvements, if the promise of legality ofoccupation or use forms part ofthe subject matter of thesale (Tambel v Field (1982) NSW ConvR 55-077, extracted at[6.190] (Skapinker)). This possibility is discussed in Chapter 6 (Skapinker).

Warranty of fitness must be express

[11.80]

A vendor may be liable to a purchaser for breach of an express term of the contract relating to the nature or quality of the subject matter of the sale. Such a term may be a condition, a warranty, or an intermediate or "innominate" term of the contract (see KoompahtooLocal Aboriginal LandCouncil vSanpine Pty Ltd(2007)233 CLR 115). The purchaseris then able to rely for relief on breach of an express term or an express warranty.

In contracts for the sale of land,the scope for any implied warranty offitness is minimal. The general rule is that there is no implied warranty that the land, or any improvements on the land, are fit for habitation, or are legally or physically fit for the purpose for which a purchaser requires them (Best v Glenville[1960] 3 All ER 478), or for any particular purpose, or that the existing use is a legally permitted use ( Mitchell v Beacon Estates (Finsbury Park) Ltd[1949] 1 P & CR 32). It is common for the vendor to include a special condition which expressly excludes any warranty of fitness of the property, and provides that the purchaser takes the property in its existing state of repair.

There is no implied warranty of fitness for human habitation on the purchase of a newly erected house from its builder if the house had been completed at the time of entering into the contract (Hoskins v Woodham[1938] 1 All ER 692). Furthermore, a warranty is not implied that the house has been constructed in a proper and workmanlike manner with proper materials, or that it is fit for occupation ( Ryde Municipal Council v Dyballa[1956] 1 LGRA254). Where the standard of construction of the building forms part of the subject matter of the sale, however, the purchaser is entitled to insist that the vendor convey the land with a building constructed to the required standard ( Vellav Ayshan[2008] NSWSC 84).

However, a contract with a builder (or developer) for the purchase of a house to be erected or in the course of erection, contains implied warranties that the building will bebuilt in a good and workmanlike manner, that the builder will supply good and proper materials and that the house will be reasonably fit for human habitation (Miller v Cannon Hill Estates Ltd[1931] 2 KB 133; Perry v Sharon Development Co Ltd[1937] 4 All ER 390; Hancock v B W Brazier (Anerley) Ltd[1966] 2 All ER 901; Streeter v McLennan[1959] Qd R 136). These warranties apply to defects discovered even after completion of thecontract, for example,to defects causedby defective foundations ( Applegate v Moss[1971] 2 WLR 541;King v Victor Parsons & Co[1973] 1 WLR 29). The implication of such warranties may beexcluded on the purchase of an uncompleted house when the contract expressly specifies the manner in which the building should be completed ( Lynch v Thorne[1956]

1 All ER 744). In addition, a builder may be liable in tort to the subsequent owner of a house for damages arising from the builder's negligence in carrying out building works for the vendor: Bryan v Maloney(1995) 182CLR 609; 69 ALJR 375; Council of the Municipality of Woollahra v Sved(1997) NSW ConvR 55-807.

Where the subject of the sale isresidential property, the Home Building Act 1989 provides the purchaser withsome protection against substandardbuilding work through its compulsory insurance regime.The Home Building Act 1989 provides that no person may do residential building work under a contract to a dwelling unless there is a contract of insurance on foot in respect of that work, and a certificate evidencing the insurance has been provided to the other party to the contract (s 92).Owner-builders must also have an insurance certificate. There are significant penalties for failure to comply (s94). Developers and owner-builders are prohibited from entering into a contract for the sale ofland on which residential building work has been done unless a certificate annexing the contract of insurance is annexed to the sale (ss 96A, 95). The consequences ofnon-compliance, including the purchaser's right to avoid the contract,are dealt with at [4.150] (Skapinker).

Summary of a vendor's limited obligations of disclosure under the general law

[11.90]

The effect of the vendor's disclosure of defects at common law is to qualify the purchaser's expectations about the title the vendor promises to convey under the contract. Williams on Title(4th ed, Butterworths, 1975) p 94 says:

A contract for the sale of land is not a contract uberrimae fidei in which there is an absolute duty upon each party to make a full disclosure to the other of all material facts within his knowledge. In fact, although it is convenient and usual to speak of a duty to disclose, the real duty in law is the vendor's obligation to make good title, or, if he has by special condition limited the title he is required to make, it is then to provide a title in accordance with the contract.

The following is a summary of a vendor's general law duty of disclosure:

(a) Subject to the terms of the contract,a vendor has an obligation to disclose latent defects in title to the subject matter of the sale, including latent defects in title to improvements erected on the land where those form part of the subject matter of the sale.

(b) Although the vendor is not obliged to disclose a patent (as distinct from a latent) defect in title,

where there is an express contractual obligation on the vendor to pass an unencumbered legal title to the purchaser on completion, the purchaser may be entitled to object to the title and to terminate the contract ifthe patent defect in title ismaterial (see Chapter 8). The vendor's contractual duty of disclosure is discussed below.

(c) The vendor's failure to disclose latent defects in title may entitle the purchaser to terminate the contract if the defect is sufficiently serious to constitute a material defect in the title to the subject matter of the sale. The purchaser's remedies in respect of material defects in title are discussed in Chapter 13.

(d) A latent defect in title will constitute also an error or misdescription as to titleunder cl 6 of the 2005 standard form contract, entitling the purchaser to elect to claim compensation. Clause 6 is discussed in Chapter 15.

(e) The vendor is not obliged to disclose in the contract either a patent or a latent defect in the quality of the subject matter of the sale, even if that defect is material to its value, but if the vendor is aware of such a defect and it is material to the present value of the property, or to the purchaser's ability to form an informed assessment of that value, the vendor may fail to obtain an order for specific performance of the contract against the purchaser (Eighth SRJ PtyLtd vMerity(1997) NSW ConvR 55-813, and the court is likely to exercise its discretion in favour of the purchaserin proceedings for an order for the repayment of the deposit (discussed in Chapters 20 and 21).

(f ) Most town planning restrictions relate to the quality and value of property and not to title or to the right to possession. The vendor has no duty to disclose to the purchaser, prior to exchange of contract, or prior to completion, the existence of such restrictions when those restrictions do not affect the vendor's title to the estate in the land being sold or the vendor's obligation to vest in the purchaser the right to possession.

Failure to disclose serious town planning restrictions which would materially affect the purchaser's use and enjoyment of the land can constitute a basis for the refusal of specific performance at the suit of the vendor (Doust v Hubbard[1964] Tas SR 260) or may entitle the court to order repayment of the deposit to the purchaser ( Yammouni v Condidorio[1959] VR

479).

(g) Active concealment of patent defects may amount to fraud, where the vendor intends that the effect of the concealment is to present the property in a condition in which it appears that no defect exists.

CONTRACTUAL DUTY OF DISCLOSURE Practical consequences of caveat emptor doctrine [11.100]

Because a purchaser has very restricted remedies for the vendor's failure to disclose matters affecting the property, the purchaser must ascertain, beforeentry into a contract to purchase land, whether the property is affected by any defects or proposals which the vendor is not obliged to disclose. This willenable the purchaser to assess whether to proceed with the transaction or, possibly, to use the problems relating to the property as a means ofnegotiating a lower price. Discovery of such defects or proposals afterentry into the contract will not provide a purchaser with any legal remedy (although such a purchaser might have some remedy in equity, by statute or in tort). The statutory disclosure regime, considered at [4.150] (Skapinker) is an attempt to allocate the risk of undisclosed defects between vendor and purchaser in a way that takes into account the fact that the vendor is in a far better position to know of defects in the property than the purchaser.

Anderson v Daniels

[11.110]

Anderson v Daniels(1983) NSW ConvR 55-144

[In 1975 Anderson("A") purchased a house at Epping. At the time of the purchase the house exhibited extensive cracking. In August 1976, September 1976 and August 1977 A employed a plasterer to plaster the internal and exterior walls of the house, despite being advised by the plasterer that the walls would crack again as the house had sandstone foundations sitting directly on clay with noconcrete foundations. On thelast occasion A had the property repainted. In September 1977the property was listed for auction. Daniels ("D") inspected the property on three occasions and saw no evidence of any structural or other defects apart from some minor cracking. On one occasion, in reply to an observation by D that there were some cracks on the outside of the house, A had replied: "Yes, all brick houses have settling cracks". On another occasion when D had remarked that the walls had no marks on them, A had replied that no children had ever lived in the house. A and D exchanged contracts for the sale of the house in October 1977 and completion took place in November 1977. Shortly after Dtook possession of the property cracks appeared in the walls. D brought an action for damages for deceit against A claiming a fraudulent misrepresentation by A that the house was in a sound structural condition and fraudulent concealment of the true condition of the house. D was awarded $28,000 damages for deceit by Judge Robson of the District Court. An appeal by A to the New South Wales Court of Appeal was unanimously dismissed.]

Samuels JA:

The plaintiffs did not assert that the defendants had expressly represented that the building was in a sound structural condition and its walls free from cracking. The claim made was that they had actively concealed the fact that the walls were prone to cracking and thus had concealed the underlying cause which that susceptibility manifested. The conduct said to constitute concealment consisted in the defendants having on three occasions engaged a plasterer, one Thomas, to carry out the plastering and filling ofcracks, primarily in the internal walls, work which did cover up existing cracks, together with statements made by Mr. Anderson in conversation with the plaintiffs and with estate agents whom he had retained to sell the property ...

The issue is thus whether it is correct to infer from this evidence of what the defendants did and what Mr Anderson said, that they acted with the intention of concealing the dwelling's propensity to crack, and the cause of that phenomenon, and thus with the intention of preventing the defects in the premises from being discovered.

The principle, which seems to me is accurately set out in Salmond on Torts, 17th ed at p 388, is in these terms:

Active concealment of a fact is equivalent to a positive statement that the fact does not exist. By active concealment is meant any act done with intent to prevent a fact from being discovered; for example, to cover over the defects of an article sold with intent that they shall not be discovered by the buyer has the same effect in law as the statement in words that those defects do not exist

...

[Conclusion]

In my opinion the conclusion to which his Honour came does not depend upon any finding that the defendants had the plastering work carried out with the intention of concealing the cracks from prospective purchasers. I am myself inclined to the view that such an inference may reasonably be drawn aboutthe work donein August 1977. However this may be, the plastering work had the effect, as the defendants were aware, ofconcealing the fact that thewalls had previously beencracked, from intending purchasers who would thus have been deprived of the knowledge which an ordinary inspection would have provided, including the opportunity to ascertain that cracking was, for the reasons I have stated, a recurrent phenomenon. It is against this background that the conversations must be considered. This evidence leads me to the conclusion that what Mr Anderson said was deliberately intended to deceive the plaintiffs byactively concealing from them the true state of the premises. The opportunity for candour was offered; but the defendants failed to reveal what the repairs had concealed.

Moffitt P:

It was apparent that the purchaser was prepared to dismiss the evidence of the cracks seen by him as of no significance and that he was prepared to regard the internal walls to beas they appeared, namely indicative of no defects. Thus even if what had been done by the vendors, which had the effect of concealing the defects, were innocent at the time the acts of concealment were done, the failure of the vendors to reveal the truth and to correct the purchaser's misunderstanding wasdishonest. The dishonestyof the failureis more apparent by reasons of the replies given, the effect of which was to put the purchaser off so his mind remained uninformed as to what was concealed and its significance.

The concealment in fact by the acts of the vendors of the otherwise patent defects, the replies when the question of cracks was raised in relation to the outside cracks and when the question concerning the condition of the internal walls was raised and the silence of the vendors, in particular on those occasions, concerning their acts of concealment referred to and theirfailure to correct the apparentmisconception of the prospective purchaser involved a misrepresentation by them thatthere was no matter for concern for such purchaser as to the condition of the external walls or the internal walls which, of course, the vendors well knew was false and material.

Priestley JA:

... [O]n a consideration of the evidence which was before the District Court, it seems to me to beclear that prior to the sale to the plaintiff purchasers the vendors were aware of the problem with the structure of the building and aware also that the renovations would make it much more difficult for a lay person inspecting the house to see any indications of the underlying defect in the structure of the house. The vendors being in possession of that knowledge were, or one of them was from time to time in a situation where comment was called for in regard to cracking which was apparentboth externally and, to a very small degree, internally in the structure of the house.

The responses to the comments or questions relating to cracks on one occasion ascribed the cause of the cracking to settlement, and on another to an earthquake. On a third occasion when an internal wall was referred to by Mr Daniels, Mr Anderson mentioned that no children had ever lived in the house, which in the context carried a clear implication that the wall was a sound one with no likelihood of cracking problems.

These matters seem to me to bepositive conduct when taken into account together with the renovation work which had been done prior to sale calculated to mislead and which did

mislead the purchasers with respect to a material fact, namely the state of the foundations of the house and the nature of the structure of the house in relation to its foundation.

Vendor's contractual duty of disclosure under the 2005 standard form contract

[11.120]

The 2005 standard form contract contains no express terms extending a vendor's general law duty of disclosure to defects other than latent defects in title.

Under cl 16 a vendor is required to pass to a purchaser, on completion, "the legal title ... free of any mortgage or other interest" to the property. Although this clause does not expand the vendor's general law duty of disclosure beyond latent defects in title, its express inclusion in the contract may confer remedies on a purchaser for an undisclosed, material patenttitle defect. This follows from the fact that a vendor of land, whose title is subject to such a patent defect which means the vendor cannot pass unencumbered legal title to the purchaser, will bein breach of contract even though not in breach of the general law duty of disclosure. If the vendor knows of a patent defect, it is generally disclosed in the contract, with an express acknowledgement by the purchaser that the disclosure has been made, and limiting the right to object or assert other rights in respect of the defect.

Clause 10provides that a purchaser may not exercise any remedy in respect of a numberof matters affecting the property or the vendor's title to it (such as the ownership or location of any dividing fence (cl 10.1.1), joint services to the property (cl 10.1.2), party walls (cl 10.1.3), conditions, exceptions, reservations or restrictions in a Crowngrant (cl 10.1.6), authorities or licences to explore or prospect for gas, minerals or petroleum (cl10.1.7), easements or restrictions on use (cl 10.1.8)).

Although cl 10 cannot deprive a purchaser of remedies arising from undisclosed latent defects in title(these being matters falling within the vendor's general law duty of disclosure), it will deprive a purchaser of any remedy in respect of the listed matters which do not constitute latent defects in title, or which are disclosed. This effectively requires a purchaser to make all relevant inquiries about those matters prior to entry into the contract.

A purchaser can only be deprived of her or his remedies in respect of easements or restrictions on use (cl 10.1.8) or other title defects (cl 10.1.9) if the vendor discloses "the substance" of the defect in the contract. Disclosure of "the substance" of a defect has been held to require disclosure of its "essence" (Hillsv Stanford(1904) 23 NZLR 1061 at 1065-1066; Gibson v Glos (1916) 111 NE 123 at

125). It is always a question of fact whethersufficient disclosure is made so as to deprive a purchaser of remedies.

Clause 10.1.8 deprives a purchaser of any remedy in respect of an easement or restriction on use "the substance of either of which isdisclosed in this contract or any non-compliance with the easement or restriction" (emphasis added). This paragraph appears to mean that if the substance of the relevant easement or restrictive covenant is disclosed in the contract, the purchaser will have no remedy in respect of any non-compliance with that easement or restrictive covenant. If the contract is varied to impose even lessonerous duties on the vendor, for example by requiring only that the existence of the defect be disclosed in the contract, the purchaser's position is even weaker.

STATUTORY VENDOR DISCLOSURE

Transactions covered by the Vendor Disclosure legislation

[11.130]

It is implicit in the legislation that the Conveyancing (Sale of Land) Regulation 2005 only applies to land situated in New SouthWales. Certain prescribed vendors, contracts and land are exempted from the vendor disclosure requirements by cll 9, 10, and 11, and Schs 4 and 5, to that Regulation. Subject to those exemptions, the following are covered by this requirement:

(a) Contracts for the sale of the feesimple, in respect of land held under any system of title, for all types of properties.

(b) Contracts for the sale of other freehold estates, such as a life estate.

(c) Contracts for the sale of a conditional or other purchase tenure under the Crown lands legislation.

(d) Contracts for the sale of perpetual leases.

(e) Contracts for the sale of leasehold estates, where:

(i) the unexpired term of the lease together with any option for renewal exceeds 25 years

(although see discussion byButt, "Vendor disclosure and long-term leases (NSW)", (1991)

65 ALJ 476);

(ii) a lease of Crown land has an unexpired term of more than five years;

(iii) a perpetual lease or other lease from the Crown has an unexpired term of more than five years.

(f ) Contracts for the assignment of options for purchase, when the option constitutes an interest in land.

The Vendor Disclosure legislation andoptions to purchase land

[11.140]

Difficulties arise in the application of the Vendor Disclosure legislation to options to purchase land. Section 52A(2)(a), Conveyancing Act 1919 requires a vendor under a contractfor the sale of land to attach to the contract certain Prescribed Documents. As an unexercised option does not amount of a contract for sale of land, it seems that a vendor need not attach the Prescribed Documents to the option itself. Applying this reasoning, it is only when the option is exercised and a contract entered into, that the need to attach the Prescribed Documents arises. McLelland J in Todd v Georgievski(1987) 10 NSWLR 319 at 323-324 summarised the position as follows:

... I would be inclined to draw the conclusion that s 52A had no application at all to options except in the case where upon exercise of an option the parties brought into existence and signed a new contract document which would on that basis be "the contract" for the purposes of s 52A(2)to the exclusion of the option agreement. It may be noted, although I do not rely on this for the purpose of construing sec 52A(2), thatcl 6(2)(b) of the regulation appears to be framed on the premise that a contract for the sale of land as contemplated in the legislative scheme arises from, and not before, the exercise of an option to purchase ...

It seems to me that if sec52A operates at all in relation to an option, it is only when the option is exercised so as to bind the purchaser that a "contract for the sale of land" within the meaning of the section would come into existence...

A similar approach to the relationship between the Vendor Disclosure legislation and options was adopted in Nguyen v Taylor(1992) 27 NSWLR 48 and Mucha v Berry(1991) 24 NSWLR 596.

To complicate matters even further, s 66ZI(1)and (2) of the Conveyancing Act 1919 require the Prescribed Documents to be attached to all options to purchase residential property at the time the option is granted (failing which either party is entitled to rescind the option, or if the option has been exercised, the contract resulting from the option, within the time provided in s 66ZI(4)). The

cooling-off legislation is discussed in Chapter 1(Skapinker). Under thatlegislation, options to purchase residential property exercisable within 42days of the option date are void (s 66ZG, Conveyancing Act 1919).

In an attempt to bring these different requirements together, Pt 2 of Sch 4 of the Conveyancing

(Sale of Land) Regulation 2005 expressly exempts from the Prescribed Documents requirement:

A contract arising from the exercise of any ... option to purchase land (not being an option that is void under section 66ZG of the Act) so long as:

(a) the proposed contract, and the documents ... prescribed under s 52A(2)(a) of the Act, are attached to the option; or

(b) the terms ofthe option prevent its exercise earlier than 3 months after the date on which it is granted.

The effect of these requirements may be summarised as follows: (a) In respect of options to purchase non-residential property

(i) If the option may not be exercised within three months of its grant,vendors are not

required to attach the Prescribed Documents to the contractarising from the exercise of the option.

(ii) If the option may be exercised within three months of its grant, vendors are required to attach the Prescribed Documents to the contractarising from the exercise of the option, unless the contract and the Prescribed Documents are attached to the option itself.

(b) In respect of options to purchase residential property

(i) the Prescribed Documents must be attached to all options, irrespective of when they may be exercised (s 66ZI(2)(b)).

An option to purchase residentialproperty which is exercisable within 42 days ofits grant is rendered void by s 66ZG(1)(b), Conveyancing Act 1919. If the option is void under s 66ZG, the exemption provided by Pt 2 of Sch 4 ofthe Conveyancing (Sale of Land) Regulation 2005 does not apply, and the Prescribed Documents must be attached to the contract.

(ii) if the contract and the Prescribed Documents were attached to the option at the date of the grant of the option, the Prescribed Documents need not be attached to the contractarising from the exercise of the option.

PRE-CONTRACT INQUIRIES Need for pre-contract inquiries [11.150]

A purchaser's need to make pre-contract inquiries will depend on the extent of the vendor's duty to disclose particular matters to the purchaser:

under the general law; or under the contract; or

by statute.

Having regard to the fact that, since 1986, a vendor ofland in New South Wales isobliged to

disclose to the purchaser latent defects in title, to attach the Prescribed Documents to the contract and to warrant that the land is not affected bythe Prescribed Warranties, the main topics of pre- contract inquiries by a purchaser are likely to relate to:

(a) The quality of the subject matter of the sale.

These inquires will cover, for example, the structural soundness of any buildings included in the sale, existing defects and deterioration, pest infestation and land contamination. EighthSRJ Pty Ltd v Merity(1997) NSW ConvR 55-813 illustrates the problems which may arise if pest infestation is only discovered by a purchaser after entry into the contract. This is particularly so where there has been recent building work, and the purchaser may need to take steps to ascertain whether the purchaser is protected under the statutory scheme established under the Home Building Act 1989.

(b) Proposals in respect of which the purchaser is not protected by express provision in the contract or by statute (for example, proposals by any sewerage authority to lay sewers on the land).

(c) The legality of structures on the property which form part of the subject matter of the sale (as discussed in Chapter 14).

(d) The legality of the existing use or intended use of the property.

Broadly, there are threemain sources of inquiries. First, technical inquiries and investigations, regarding the value, condition and state of repair of the subject matter of the sale, including the land, buildings, improvements and chattels, should be made. That may involve obtaining a pre- purchase property inspection report from real estate valuers, building experts (such as architects, builders,engineers, inspectors fromthe Building Services Corporation and site auditors, pest control experts, plumbers, electricians).

Secondly, inquiries should be made of the local council and other statutory or resuming authorities about zoning, affectations and development potential.

Thirdly, inquiries should be made of the vendor or from the estate agent.

Form of inquiries

[11.160]

Any inquiry may be oral or in writing. It is prudent for inquiries to be made in writing whenever possible, for three main reasons:

(a) to have evidence of the precise inquiry made,

(b) to direct attention to the seriousness of the inquiry, (c) in order to elicit a more precise reply.

The danger ofmaking an oral inquiry is illustratedin LShaddock & Associates Pty Ltd vParramattaCity Council(1981)150 CLR 225. In that case, the purchaser's solicitor made an oral inquiry from the town planning section of a local council regarding the zoning of the property. The High Court held that the council owed no duty of care in relation to information given by phone in response to a telephone inquiry because it would not have been reasonable for the recipient of the information to have relied on it, whereas in respect of a written inquiry, the council knew or ought to have known of the significance of the inquiry for conveyancing purposes, and the fact that the recipient would rely on it.

Although it ispossible to hold a statutoryauthority liable for negligent oral replies to oral inquiries, a purchaser's prospects of success willimprove if there is an erroneous reply given in writing. Ifthe reply is given gratuitously, liabilitydepends on itsconstituting a negligent

misrepresentation. If it issupplied for a fee, there will also be liability in contract when the contract containsan express orimplied term that accurateinformation will be supplied. Priestley JA in the New South Wales Court of Appeal in Council of the Municipality of Woollahra vSved (1997) NSWConvR 55-807 at 56,556-56,337 held that that there is no rule to the effect that there has to be some confirmation of information given by telephone by a council officer before a party dealing with the council can rely on that information. Whether such a statement is capable of giving rise to legal consequences will depend on the circumstances of the case. The liability of a local council for information supplied in a zoning certificate is discussed in Chapter 12. Under the Civil Liability Act 2002, a person is not required to take precautions against the risk of harm (which includes economic loss) unless the risk was foreseeable and not insignificant, and a reasonable person would take precautions in the circumstances (s 5B).

The provisions of the CivilLiability Act 2002 may affect the position in respect of the liability of a council as a "public authority" within the meaning of that Act. Councils are required to provide information on mattersaffecting the use of landas part of their functions underthe Environmental Planning and Assessment Act 1979, and thus in exercising a statutory power. Part 5 of the Civil Liability Act 2002 contains provisions which limit the liability of councils. Under s 42 a council may rely on compliance with the general procedures and applicable standards for the exercise of functions as evidence of the proper exercise of its functions in the matter to which the proceedings relate. Where the claim isfor economic loss arising out of a negligently given (and incorrect) reply to a written request for information, however, it would be difficult for a council to rely on its adherence to general procedures if following those procedures would have produced a correct answer to the inquiry.

Arguments against making inquiries

[11.170]

There are several arguments against the making of pre-contract inquiries:

(a) They involve time and expense, preventing prompt exchange of contract.

(b) The purchaser may be under pressure to exchange quickly, particularly whenthere are competing purchasers.

(c) There isno established or consistent conveyancing practice regarding the inquiries which should be made.

(d) It is difficult to prevent non-committal or evasive replies from a vendor. (e) The remedies for erroneous replies are not entirely satisfactory.

(f ) In a large number of situations the pre-contract inquiries will not reveal anything seriously detrimental.

(g) It is difficult to obtain a satisfactory answer or to make reliable investigations regarding some legitimate topics of inquiry.

(h) Even afterformal preliminary inquirieshave been madeand replies supplied prior to contract, a purchaser's solicitor is still required to makeappropriate requisitions and inquiriesafter exchange of contracts,and obtain confirmationthat the answersto the preliminary inquiries are still accurate as at or shortly before the date of completion (Goody v Baring[1956] 1 WLR 448 at 456).

Despite these argumentsagainst the making of pre-contractinquiries, it is suggested that a purchaser's solicitor should draw to her or his client's attention that certain pre-contract inquiries are necessary, or prudent, and outline the range of possible inquiries. The ultimate decision rests with the purchaser as to whether to require or to conduct any such inquiries. The type of inquiry to be made willdepend on the nature and the value of the property, the purchaser's intended use

of the property,the availability of time and the pressure for a prompt exchange ofcontract. However, purchasers are entitled to the informed advice of their lawyers as to what pre-contract inquiries it would be prudent to make to protect the purchaser's interest in the particular circumstances.

REMEDIES AGAINST ILLEGAL OR NON-COMPLYING BUILDINGS

[11.180]

Until 1920 (and 1949in respect of land within the Municipality of Sydney) there were no controls on the erection or alteration ofbuildings. This changed with the commencement of the Local Government Act 1919 (LGA 1919) on 1 January1920 which required buildings erected after that date to be erectedto the satisfaction of thelocal council in conformity with theLGA 1919, regulations andordinances under thatAct and with theapplication, plans and specifications relating to the building approved by the local council.

The LGA 1919 initially didnot impose any statutory sanction on buildings or structures illegally erected without the required local council approval.

However, local councils could seek demolition orders by way of mandatory injunctions from the Supreme Court exercising its equitable jurisdiction for breaches of building and planning requirements (NorthSydney Municipal Council vComfytex Pty Ltd[1975] 1NSWLR 447). Local councils could also impose penal sanctions against the offending builder and owner involved in the contravention of the LGA 1919.

Section 317B(1A) of the LGA 1919, which commenced on 1 January 1959, provided local councils with a power to order the demolition of buildings erected or work carried out after 1 January 1959 without the required local council approval.

As this power of demolition was a sanction against the building, rather than against the persons responsible for the contravention, s 317B(1A) had serious repercussions for purchasers of illegally erected or altered buildings since such an order could be made against the current owner of the building, regardless of whether it was involved in, or even aware of, the contravention.

Section 317B(1A) provided that:

If any building is erected or altered after ... 1958, without the approval of the council having been obtained therefor beforehand, the council may, by notice in writing specifying a reasonable time for compliance therewith, order the owner to demolish the building or the alteration, as the case may be, or, as an alternative, to carry out to the satisfaction of the council such work specified in the notice as is necessary to make the building or the building as altered, as the case may be, comply with the Act and ordinances.

This subsection shall not apply to or in respect of any building in respect of which the council has issued a certificate under section 317Aof this Act ...

An aggrieved owner's only remedy was to appeal to the Land and Environment Court (s 317B(5)), with a further right of appeal to the Supreme Courton a question of law (s 57, Landand Environment Court Act 1979).

The council's remedy in case of a non-compliance with its order was either to enter on the land and carry out its order (s 317B(2)), with the consequences outlined in s 317B(3), (4) and (4A)) or to apply to the Land and Environment Court for a mandatory injunction.

The provisions of the LGA 1919 relating to the constitution and powers of local councils were repealed and replaced by the Local Government Act 1993 (LGA 1993), which commenced on 1 July

1993. The development provisionsin the LGA1919 were moved intothe EP&A Actwhich

commenced on 11 June 1981.

The power of local councils in relation to illegal or non-complying buildings is currently found in s 121B of the EP&A Act. This section relevantlyallows a local councilor any otherperson exercising the functions ofa consent authority to make orders in relation to premises against a person to do or to refrain from doing a thing specified in Column 1 of a table set out in that section, if the circumstances specified opposite it in Column 2 of the table exist and if the person comes within the description opposite it in Column 3 of the table. Some examples of the orders that local councils can make under the EP&A Act are:

	Column 1	Column 2	Column 3
	To do what?	In what circumstances?	To whom?
1	To cease using premises for a purpose specified in the order	(a) Premises are being used for a purpose that is prohibited (b) Premises are being used for a purpose for which development consent is required but has not been obtained (c) Premises are being used in contravention of the conditions of a development consent	Owner of premises, or person by whom premises are being used for the purpose specified in the order
2	To demolish or remove a building	(a) Building is erected without prior development consent of consent authority in a case where prior development consent is required or is erected without prior development consent of a consent authority and a prior construction certificate in a case where both prior development consent and a prior construction certificate are required (b) Building is or is likely to become a danger to the public (c) Building is so dilapidated as to be prejudicial to its occupants or to persons or property in the neighbourhood (d) Building is erected without prior approval of council, in a case where prior approval was required under the LGA 1919 or the LGA 1993 when the erection of the building commenced	Owner of building
9	To cease the use of a building	The use of the building: (a) is not consistent with its classification under this Act or	The owner or occuper of the building

		the LGA 1993, and (b) constitutes or is likely to constitute a life threatening hazard or a threat to public health or public safety, and (c) is not regulated or controlled under any other Act by a public authority
12	To do such things as are specified in the order to restore premises to the condition in which they were before building was unlawfully erected or before work was unlawfully carried out	(a) Building has been unlawfully erected, and an order No 2 has been given requiring the building to be demolished or removed (b) Work has been unlawfully carried out	The owner of the premises, any person entitled to act on a development consent or complying development certificate or any person acting otherwise than in compliance with a development consent or complying development certificate
13	To do such things as are necessary to bring into compliance with relevant development standards any building or part of a building that has been unlawfully erected	Building has been unlawfully erected and does not comply with relevant development standards	Owner of the premises
14	To repair or remove a building	The building is situated wholly or partly in a public place	Owner or occupier of building
19	To cease carrying out specified building work or subdivision work	(a) Building work or subdivision work is being carried out in contravention of this Act (b) Building work or subdivision work is being carried out that affects the support of adjoining premises	Owner of land or any person apparently engaged in carrying out the building work or subdivision work

Section 124 of the LGA 1993 also authorises a local council to order a person to do or to refrain from doing a thing specified in Column 1 of the Table in that section if the circumstances specified opposite it in Column 2 of the Table exist and the person comes within the description opposite it in Column 3of the Table. These orders can only be made in relation to buildings erected in a catchment district and relevantly include the right of a council to make the following orders:

Column 1	Column 2	Column 3
To do what?	In what circumstances?	To whom?
1 To demolish or remove a building	(d) Building is erected in a catchment district and causes or is likely to cause pollution of the water supply	Owner of building
3 To repair or make structural alterations to a building	(c) Building is erected in a catchment district and causes or is likely to cause pollution of the water supply	Owner of building

If an order relating to a building that forms part of the subject matter of a contract for the sale of land exists at the date of the contract, the purchaser will be protected by cl11.1 of the 2005 standard form contract (discussed in Chapter 13(Skapinker)) which provides thatthe vendor must, by completion, comply with a "work order" made on or before the date of contract.

A "work order" is defined in cl 1 of the contract to mean a "valid direction, notice or order that requires work to be done or money to be spent on or in relation to the property or any adjoining footpath or road". This definition accordingly includes a demolition or repair notice issued under s 121B of the EP&A Act or s 124 of the LGA 1993.

Where an order relating to a building is only made after the contract date, cl 11.1of the 2005 standard form contract provides that if the contract is completed, it is the purchaserwho is required to comply with such a notice.

The further issue for purchasers ofillegal or non-complyingbuildings is whether the potentialpower of a local council to order the demolition of the building after exchange of contracts is an undisclosed latentdefect in thevendor's title,