Full disclosure when selling a property isn’t just ethical – it’s the law. Failure to comply with disclosure requirements could lead to a buyer terminating the contract, costing real estate agents and their clients serious dollars.
Pre-contract disclosure is an important feature of Queensland community title law. It applies to apartments, townhouses, shopping centres and other residential and commercial lots located within community titles schemes. It allows sellers to accurately describe the property they wish to sell, and buyers to make an informed buying decision before committing to purchase.
Before a Contract of Sale is signed by a seller and a buyer, the seller must give the buyer a disclosure statement containing the information required by section 206 of the Body Corporate and Community Management Act 1997 (the Act).
Content of disclosure statements
Disclosure statements given to buyers must include the following information:
- The name, address and contact telephone number of relevant parties depending on the Scheme:
- for lots situated within a Specified Two-Lot Scheme: details required for each person who is responsible for keeping Body Corporate records;
- for lots situated within any other type of Scheme: details required for the secretary of the Body Corporate for the scheme; and
- for all lots: details required for the Body Corporate Manager (if one has been appointed);
- The amount of annual contributions currently payable by the owner of the lot to be sold;
- Details of any improvements on the Common Property of the Scheme for which the owner of the lot to be sold is responsible;
- A list of the following:
- for lots situated within a Specified Two-Lot Scheme: the assets owned by Body Corporate which have a value of more than $1,000;
- for lots situated within any other type of Scheme: the assets owned by the Body Corporate;
- A statement as to whether there is a Body Corporate Committee (usually the case for most Schemes, except Specified Two-Lot Schemes), or a Body Corporate Manager (common for medium to large sized Schemes) which is engaged to perform the functions of the Body Corporate Committee; and
- Any other information prescribed under the relevant regulation module applying to the Scheme (i.e. Standard Module, Accommodation Module, etc.).
Disclosure statements must be “substantially complete”
While it is beneficial to ensure that all of the above information is included with each disclosure statement, the disclosure statement is not necessarily invalidated if information is missing. Disclosure statements only need to be “substantially complete” in order for the disclosure requirement of the Act to be satisfied.
When is a disclosure statement “substantially complete”? Generally, if the following information is not disclosed, a disclosure statement will not be substantially complete:
- The amount of annual contributions payable by the owner of the lot;
- The Common Property improvements for which the owner is responsible; and
- The regulation module applying to the Scheme.
The above three items are the key pieces of information which will allow the buyer to understand the obligations which it must comply with as the owner of the lot. In practice, if disclosure statements do not contain such information, then buyers will be much more likely to seek to avoid the Contract if they discover (after signing) that they are not happy with the obligations applying to the lot.
Disclosure statements must be signed by the seller or its agent
A disclosure statement must be signed by the seller (or on the seller’s behalf by its agent or solicitor) before it is given to the buyer. Otherwise, the buyer will have no reason to consider the information disclosed to be accurate. This is a critical requirement which is frequently overlooked and should be checked at any time Contract documents are issued to a buyer.
If a seller fails to give a disclosure statement to a buyer which is both substantially complete and signed by the seller, then the buyer will have an automatic right to terminate the Contract at any time before settlement. If a buyer terminates, the seller could suffer a loss (such as legal fees) and commission will also not be payable to the real estate agent acting for the seller.
The only way to rectify a failure to comply with the disclosure requirements is to issue a new compliant disclosure statement and have the buyer re-execute the disclosure statement and Contract. If a Contract has already been entered into when it is discovered that the disclosure requirements have not been complied with, then the Contract will generally need to be rescinded and a new contract entered into to avoid the buyer having a right of termination.
- A disclosure statement contains information which is inaccurate; or
- The buyer, despite reasonable efforts, is unable to verify the information contained in the disclosure statement; then
the buyer will have a right to terminate the Contract at any time prior to settlement.
If a buyer terminates a Contract for the above reasons, all deposit monies paid by the buyer must be refunded in full.
Given that non-compliance with the disclosure requirements of the Act may give rise to a right of a buyer to terminate, it is important that real estate agents put systems in place to obtain accurate information for disclosure (such as from the Body Corporate of the Scheme) and check disclosure statements before they are issued to buyers.
If in doubt, we would suggest liaising with a solicitor before Contract documents are issued to buyers.