The Importance of a Current Identification Survey and Report in a Conveyancing Transaction
A paper by Matthew Crouch, partner with solicitors Bartier, Perry & Purcell
|This paper may not be reproduced without the prior written consent of the Institution of Surveyors, NSW or the chairman of the Cumberland Group.|
In most real estate agent transactions there are three players on stage: vendor, purchaser and mortgagee.
The interests of each can be affected by the presence or absence of a current survey, which reveals three essential matters.
First, it identifies the property. This is of great importance to the purchaser and the purchaser's mortgagee.
The survey will confirm that the property inspected by the purchaser is in fact the property described in the Contract for Sale by reference to the Title folio identifier.
In other words, it correlates the title reference with the street address.
This is important because it shows the purchaser that they are buying the right property. Equally, it shows the mortgagee that the security property is adequately described in the mortgage document.
Many are the lenders who have advanced money on the security of a particular title reference, only to find it was the wrong property, or that it was only part of the property it anticipated getting as security.
Second, a survey will reveal whether the property complies with various local government rules. For example whether it stands too close to its boundaries and defects that the local council may be empowered to require the owner to rectify.
Third, the survey will show whether there are any encroachments by or on the subject property.
If the buildings do not stand wholly within the boundaries, the affected neighbour may have a right to demand removal of, or compensation for, the encroachment.
Each of these matters can make a great difference to the security value of the property to a mortgagee.
If ever the worst happens and the mortgagee has to exercise its power of sale over the property to recover the loan it will be much harder to sell if there are serious breaches of the Local Government Act or if there are encroachments requiring rectification.
Even if such matters do not prevent a sale altogether, they may be a factor that potential purchasers could use to negotiate a lower price.
Obtaining a survey on purchase of a property also provides the purchaser with a valuable aid for obtaining finance and indeed for selling the property later on.
If the purchaser wished to raise money on the property's security at a later date, it would be beneficial if they could provide the lender with a survey quickly.
Because of these factors, many lenders require a survey as a condition of the loan.
For the vendor, it is a case of having to disclose all defects or affectations revealed by the survey in the Contract for Sale.
Failure to do so may give the purchase the right to rescind the contract.
If a vendor does not annex a current survey to the sale contract there will be a risk that the purchaser may elect to obtain one and discover defects that would allow them to back away from the deal and reclaim any deposit.
It is clear that the survey is not just an annoying conveyance expense.
It is a peculiar sign
of our times that some people will insist on a full inspection before
buying a car, but when entering into what is the largest transaction of
most people's lives - buying and selling a house - they will skimp on