A Practical Consideration of The Property Law Act 2023: Sellers Disclosure
It is no secret that Queensland's Property Legislation has been in need of face lift for some time. It unfortunately took a COVID pandemic, an inflated and highly competitive property market as well as countless unconditional contract horror stories, but change is now here. The Property Law Act 2023 (Qld) is being marketed to represent a significant overhaul of some of Queensland's oldest and most outdated property provisions. The rationale behind the facelift, being to modernise property transactions in Queensland through the fostering of greater transparency for all parties involved. Whilst this all sounds great in theory, many of us in the industry remain sceptical as to whether these changes will convert to their desired results in practice. This series will unpack the forthcoming changes on a practical day to day level, and consider the implications, challenges, and outcomes that these changes will practically cause on those transacting the Queensland's property market.
Empowering Buyers: Seller Disclosure
The Act introduces a mandatory seller disclosure scheme, which aims to shift Queensland away from the current 'Buyer Beware" model into similar model to that of the other East Coast Australian states, where the Seller carries the disclosure responsibility. For those unfamiliar with Queensland's current model, when listing a property for sale, an owner needs only to engage an agent. In Queensland a real estate agent is authorised to draft and issue a Contract of Sale. Whereas in other states real estate agents are not authorised to draft contracts, this is a task that can only be performed by a legal professional. This prompts the veil to set over once transparent interactions and further perpetrate the problem – that Buyers are goaded into purchasing property that does not fit their needs. Queensland operates on a "warranty" system, whereby when entering into a standard contract of sale, a Seller provides certain warranties under the Building Act 1975, the Planning Act 2016 and the Environmental Protection Act 1994. These warranties are limited to government or authority issued notices, threatened litigation and land contamination. For all other matters affecting the property it is the responsibility of the Buyer to investigate and ascertain, as part of their Building and Pest and Due Diligence Conditions. A further flaw in Queensland Property Law, where the Buyers must now negotiate for these conditions in the contract.
During the COVID property bubble, the market became so competitive that Buyers were dealt the ultimatum to choose between the security of being able to conduct Building and Pest Inspections and property enquiries under a Building and Pest or Due Diligence Condition or having their offer on a property accepted. With no statutory protection, Buyers were being unfairly pressured to accept properties on an as/is where/is basis because this was the "climate" of the Queensland Property Market.
Unfortunately, it was no surprise that various new articles began to arise where buyers had purchased properties with serious defects, further exemplified by in the worst of cases – seeing Buyers waste hundreds of thousands and being forced to demolish whole dwellings, due to undisclosed issues with their newly-purchased property. Even now, as more of these articles emerge; whether it be termites, flood history, wood rot or mould, Buyers must continue to fork out additional funds to rectify these issues at the height of the interest rate rise, all the while it is maintained that they should have heeded the: 'Buyer Beware' notice.
Whilst these Property Law changes may have become a topic of conversation from COVID bubble. Whilst the COVID bubble has largely popped, the markets competitiveness has not eased back, Queensland's property market will never return to its previous state and it is that reality which has spurred these changes through Parliament;
So, what are these changes?
The Act lists specific categories of information that must be disclosed by Sellers to prospective Buyers, prior to a contract of sale being executed. This information includes details on:
- Physical Condition: Structural issues, damage history, past renovations (including permits and approvals), presence of pests like termites, and any limitations on property use due to easements or covenants;
- Environmental Factors: Information on potential asbestos presence, flooding history, soil contamination, and any past environmental incidents on the property;
- Council Approvals and Compliance: Details regarding outstanding council orders, required works (e.g., pool fencing), or breaches of building regulations; and
- Essential Services: Information on connection points and functionality of essential services like electricity, water, gas, and sewerage.
Similarlyto sales of property within a Body Corporate the Seller will be required to produce a Disclosure Statement, with all the above information attached, and the parties will be required to sign the Statement, confirming receipt of the information.
Will it work?
This comprehensive disclosure will better equip Buyers to make informed decisions in competitive markets, without losing out on properties. Instead of being placed in situations where Buyers must forgo a Building and Pest Condition or Due Diligence condition in order to successfully 'win' the Property, Buyers are now provided with information regarding potential issues. This allows them the formerly withheld opportunity to make informed decisions when considering the terms of their Contract, and wholly assessing the risk of entering into unconditional contracts. This is not to say that Buyers should do away with their own independent enquiries, searches and inspections, but, it will assist Buyers in identifying any early warning signs or red flags regarding a property and being able to soundly determine whether to sign an unconditional contract.
On the other foot, Sellers will be required to take reasonable steps to ensure the accuracy of the information that they disclose. The penalties imposed under the legislation for a failure to disclose or for a misrepresentation of the information are significant. If the information is not accurately and compliantly given, Sellers can be subject to fines, post settlement compensation and open themselves up to giving the Buyers a terminable right under the contract. It shall be crucial in practice for Sellers to appoint their solicitors immediately in order to ensure that both adequate and compliant disclosure is supplied. Agents ought to tread carefully when advising Sellers of their disclosure requirements as they may be deemed to be holding themselves out to giving the Sellers advice on their obligations under the Legislation. This change will test the working relationships of real estate agents and solicitors, as it will become essential that solicitors are engaged early to ensure ample time to obtain all the necessary information, searches, and documents for the Disclosure Statement, without causing any prospective deals or leads to be lost, due to a contract not being ready for signing.
This is fundamentally, in our view, the big determinative factor on whether these changes will be effective. If Sellers are not obtaining advice regarding the disclosure and the various stakeholders in the transaction are not working collaboratively, contracts will fall over, or worse – Sellers will be exposing themselves to compensation claims.
Are you ready?
With no set commencement date in place, these changes could come into effect at any time. So, whether you are thinking of selling, or are an agent wanting to stay ahead of the curve, get in touch with our team to learn more about the implications and what you can be doing to navigate these changes successfully and unscathed.