Seller's disclosure responsibilities

4/09/2017

Q: We are planning to sell our elderly mother’s property in a few months’ time. It has an unconsented deck, built by my builder father 25 years ago. The deck is rock-solid and we can’t be bothered with the hassle of contacting the council to get consent. Do we have to tell potential buyers that it’s unconsented or can we just leave it as-is?

A: Real estate transactions involve large sums of money and complex legal documents, but that doesn’t mean there isn’t room for a bit of common decency. How would you feel if you’d bought a property only to find parts of it were unconsented? At the Real Estate Agents Authority we encourage potential buyers to do as much research as they can before signing up to a deal. We would be remiss if we didn’t encourage sellers to be open and honest in return.

When you’re selling a property you are legally obliged to share all the relevant information about it. If work has been done on the property during your ownership, either by you or someone else, the standard terms of the sale and purchase agreement require the seller to warrant that any legally required permits or consents were obtained. If you knowingly fail to disclose unconsented works, you are in breach of contract. This means there is a risk that the sale could fall over or that you could run into problems prior to settlement. Even worse, the buyer could take you to court for breach of warranty. Selling a property can be stressful enough – it doesn’t make sense to pile on any additional pressure.

Have you looked at your options for getting the deck approved? While you can’t apply for retrospective consent for a structure that is already built, you can apply to the local council for a Certificate of Acceptance. This applies to work that was done without a building consent before 1992, or in certain circumstances when a code compliance certificate can’t be issued. According to the Ministry of Business and Employment, a council should process a certificate of acceptance within 20 working days. If the application is denied, the council must issue a ‘notice to fix’ that sets out what needs to be done to ensure compliance.

If this seems like too much hassle or you don’t think you have time to seek a certificate before the house goes on the market, you are better off to disclose it or to strike out the applicable vendor warranties clause in the sale and purchase agreement. Your first step should be to discuss the issue with your licensed real estate agent and your lawyer. 

Once the real estate agent is aware of the situation, they are bound by their Code of Conduct to disclose it to any prospective buyers. If you tell them about the deck or any other issues to do with the property, but ask them not to tell anyone, they are required to stop working for you. If the deck is as well-built as you say, then buyers shouldn’t be put off. 

Similar disclosure issues can arise over more sensitive matters. Some sellers worry about whether or not to tell an agent or prospective buyers about an issue that doesn’t relate to the physical state of the property – such as it being the scene of a murder, suicide or violent crime. 

Here, deciding what to disclose is less straightforward. The REAA advises agents to take a cautious approach and to consider each situation on its facts, while recognising the individual circumstances. The High Court has said that a more recent event, especially one that might have gained some notoriety in the local neighbourhood, may have more bearing on a prospective buyer’s view of the property than a historic one. The location of the event (whether it took place in the grounds of the property or inside the house) and whether the property has been lived in since it happened, as well as the likely reaction of potential buyers, should also be taken into account. The death of someone from natural causes at the property does not need to be disclosed, as this is considered an everyday occurrence.

If you are in this situation as a seller, it’s best to discuss what to do with your real estate agent. Again, they cannot tell prospective buyers without your consent – and if they decide that a sensitive issue should be disclosed but you don’t agree, then they must cease to act for you. 

Whatever the situation, whether it’s unconsented work or a tragic event, honesty is the best policy. Talk to your agent about how the disclosure will be handled. There is no need to advertise the information or tell everyone who wanders along to an open home, but potential buyers who have indicated an interest in making an offer must be told.