One challenge practitioners face during the due diligence process is that commonly, contracts will not annex a building information certificate and recent survey plan. This makes it difficult to ascertain whether the property being purchased has title defects. Further, the extensive timeframes and cost associated with obtaining these searches often mean clients opt to proceed without this information. One tool purchasers might wish to consider in this situation is title insurance. Title insurance may provide protection against a range of title defects such as unapproved building works and boundary encroachments that were undisclosed and unknown to the purchaser at the time they purchased the property. Title insurance does not however extend to environmental risks.
Determining the extent to which environmental risks might impact or have already impacted a property is another challenge practitioners face during the due diligence process. When it comes to assessing the severity of an environmental risk, it’s important to factor in the way in which that environmental risk might change over time. Is it enough to rely on the notations in the Local Council Planning Certificate, which provide a snapshot at best? If the purchaser is relying on finance, it is imperative they do not proceed to an unconditional contract until their finance is unconditionally approved. I have had clients whose finance was pre-approved at exchange, only to be knocked back on account of the property they were purchasing being deemed an unsuitable security due to it being located in an area that was previously impacted by flood or bushfire.
When it comes to assessing environmental risks that have already caused structural damage it is essential purchasers obtain pre-purchase pest and building reports from a reputable and impartial third-party professional. We’ve all heard the horror stories of people buying properties only to find out the property contained major structural damage from a past climate event. It can be difficult to observe this type of damage when the property has been renovated and it is important to be aware that there are limitations to what vendors and agents are required to disclose, for example in NSW the Property and Stock Agents Regulation 2022 prescribes that agents must disclose when a property has been subject to flood or bushfire, however this obligation is limited to when the climate event occurred within the last 5 years.