Terminating a Contract – Undeclared Statutory or Unregistered Encumbrances

Buyers can Terminate when a Seller doesn’t Disclose a Statutory or Unregistered Encumbrance on the Contract

The Real Estate Institute of Queensland (REIQ) House and Land Contract has significantly streamlined the process of selling your property in Queensland since its introduction, but there are still some finer points for sellers and agents to be aware of.

Many contracts for the sale of land in Queensland place upon the seller(s) of the land an onus to disclose to the buyer not just any registered encumbrances such as easements and leases, but also any “statutory” or unregistered encumbrances that affect the land. The existence of a statutory encumbrance may not appear on a title search of the property, but may provide the buyer with a valid  means of termination if the seller fails to disclose the encumbrance prior to execution of the contract.

Whether a statutory encumbrance exists with respect to the property is therefore a key question for sellers and agents to be aware of when preparing a contract of sale.

What are Statutory Encumbrances?

A statutory encumbrance does not often appear on the title to property. Despite a statutory encumbrance not being “registered” on the title, its mere existence may carry with it certain statutory rights, restrictions or obligations upon the owner.

Not all statutory restrictions or obligations bind the owner in the same way and a key issue

for sellers and agents is determining what statutory encumbrances impact the title in a material way and which ones merely place restrictions on the use and enjoyment of the land. The latter encumbrance may only need be disclosed in certain circumstances, such as through provisions in section 408 of the Environmental Protection Act 1994 (Qld) where the property is on the contaminated land register.

An Obligation to Disclose

Although the disclosure obligations upon a seller are limited when compared to other States, in Queensland, the seller is still obligated to provide sufficient particulars that effect title to the property to allow the buyer to affect the transfer. The seller’s obligation to disclose these statutory encumbrances and other defects in title arises from both common law and the terms of the contract itself.[1]

Therefore, where title to the property is affected by an encumbrance (registered, statutory or otherwise) the seller must provide a sufficient description of any encumbrance or interest that will persist on the title after registration.

What are some examples of statutory encumbrances?

 Identifying whether a statutory encumbrance materially affects the title depends on whether the right, restriction or obligation that arises because of the statute create an encumbrance that attaches to the land and binds successive owners without consent.

While an unregistered encumbrance may not be as easily discovered as a registered encumbrance, an unregistered encumbrance that is capable of registration should still be disclosed to any potential buyer. Examples may include short leases, equitable mortgages and any land access agreements.

A statutory encumbrance may arise from a statutory right conferred upon a third party (such as the local council). For example, the statutory right granted under section 144(1) of the Local Government Act 2009 (Qld) for a local government to enter private property to access drainage or sewerage pipes creates a statutory right of entry that the court has found analogous to an easement. See Liberty Grove (Concord) Pty Ltd v Yeo (2006) 12 BPR 23,709

 

If you would like to know more about how these statutory encumbrances might affect your property, please contact Certus Legal Group.

[1] Property Law Act 1974 (Qld) s 61(1)(a)

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