Table of Content
- What is an Encumbrance on a Property in QLD?
- What are Unregistered Encumbrances?
- What are Restrictive Covenants Encumbrances?
- What are Statutory Encumbrances in QLD?
- Must a Seller Disclose Encumbrances?
- How Can You Protect Yourself from Undisclosed Encumbrances?
Revealing encumbrances on a property is a crucial aspect of the conveyancing process. According to the provisions within the standard Contract for Houses and Residential Land as defined by the Real Estate Institute of Queensland (REIQ), a purchaser retains the right to terminate a contract until the settlement if there are undisclosed encumbrances. It’s worth noting that encumbrances might not always be evident in a title search and may require thorough investigation to become apparent.
What is an Encumbrance on a Property in QLD?
An encumbrance is a burden over one block of land usually in favour of a third party or another block of land. For example and Mortgage or an Easement. The definition of encumbrance highlights the importance of being aware of their existence during the conveyance or transfer of a property. Encumbrances can take various forms, either benefiting a third party or block of land or encumbering the land. They may be registered or unregistered and can be established through statutory provisions or written agreements which may or may not be registered on title.
Generally, there are two types of encumbrances:
- Registered encumbrances include encumbrances registered on the title.
- Unregistered encumbrances are those that are not registered on the title but nevertheless create a benefit and a burden.
- Financial encumbrances (for example a mortgage) secure a financial burden in favour of the third party ( e.g. Lender).
Examples of encumbrances on property are:
- Mortgages;
- Easements;
- property tax liens;
- Memorials;
- Restrictive covenants;
- Statutory encumbrances.
What are Unregistered Encumbrances?
In the most recent iteration of the QLD REIQ, sellers are instructed to communicate with buyers regarding ‘any title encumbrances that will continue after the settlement.’ Failure to disclose unregistered encumbrances gives the buyer the right to terminate the contract before settlement, even if the contract is otherwise unconditional. The buyer can also seek damages, including costs.
Some agents and solicitors are incorporating comprehensive ‘Catch All’ clauses into contracts, aiming to recognize the existence of unregistered title encumbrances in QLD without detailed specifications. A common provision in these contracts typically states that it covers ‘all statutory easements, encumbrances, or rights related to water, sewerage, drainage, or other utilities.‘ Nevertheless, this may not meet the requirements for thorough disclosure and could expose the seller to potential legal consequences.
To ensure comprehensive disclosure of any unregistered encumbrances, a thorough investigation should be made. If any such services are identified through this search, the seller must affirmatively respond to the question ‘Title Encumbrances: Is the property subject to any Encumbrances?’ A description of the encumbrance, such as ‘Brisbane City Council stormwater drain running parallel to the rear boundary of the property from right to left,’ should be provided.
Furthermore, a copy of the plan obtained from the search, highlighting the position of the encumbrance on the property, should be attached to the back of the contract. All parties involved should then sign this annexure as part of the contract.
What are Restrictive Covenants Encumbrances?
A restrictive covenant imposes certain limitations on the utilization of a piece of land, which can include constraints on building materials or the size of the architectural plan. These covenants are frequently encountered in new developments, where developers employ them to maintain a consistent appearance across properties.
It’s crucial to distinguish between the two primary types of covenants: negative and positive. Negative covenants pertain to actions that are prohibited, whereas positive covenants prescribe actions that must be undertaken. For instance, a negative real estate covenant might prohibit the raising of chickens on your property, while a positive covenant could mandate regular lawn maintenance.
What are Statutory Encumbrances in QLD?
The presence of assets owned by any statutory authority on the land is a statutory encumbrance, which must be disclosed to the buyer as a title encumbrance. For example, local governments possess a statutory right to access private land for the maintenance of drainage and sewerage pipes.
It’s important to note that statutory encumbrances of property are not always registered on the property title. They pertain to the essential infrastructure required for the upkeep of a property. These encumbrances may encompass overhead power lines, as well as drainage and sewerage pipes both above and below the land. Various entities, such as local councils, Energex, and Urban Utilities, are granted statutory rights to establish and maintain these services. Some of these services may be so longstanding that they are not recorded on the property title. Regardless of their registration status, removing these structures from your property is typically not permissible.
Must a Seller Disclose Encumbrances?
As the seller, it is imperative to ensure that the property title you deliver to the buyer at the time of settlement is free from any concealed encumbrances. This requirement is specified in REIQ dictates that ‘The Property is to be transferred without any undisclosed Encumbrances, except for the Title Encumbrances and Tenancies.’
Therefore, a seller’s responsibility is to meticulously enumerate all encumbrances that will endure post-settlement in the reference schedule of the contract, under the section titled ‘Matters Affecting Property.’ This includes any encumbrances that may not currently be recorded on the property’s title.
It’s worth noting that you are not obliged to disclose a mortgage that will be discharged upon settlement. However, it’s critical to emphasize that this list must be thorough and explicit; merely referring to a search that will be conducted before settlement or the title search is insufficient.
How Can You Protect Yourself from Undisclosed Encumbrances?
The existence of undisclosed encumbrances can impact both parties involved in a conveyance. If you’re the seller, you might be wondering how to safeguard yourself against a buyer’s potential termination due to undisclosed encumbrances. On the other hand, if you’re the buyer, you may be inquisitive about how to ascertain if there are any concealed encumbrances on a particular lot. Like many issues in conveyancing, these concerns can be mitigated through diligent searches and the inclusion of carefully crafted special conditions. For a comprehensive examination of the importance of due diligence, please refer to some of our previous articles:
- What Happens if a Settlement is Delayed During Conveyance?
- What Can Go Wrong When Transferring a Property
In essence, both parties should undertake thorough property searches to gain a full understanding of what is being bought or sold. Both parties can benefit from utilizing services like Dial Before You Dig, a national referral service offering information about the location of underground infrastructure. This can reveal the location of any services on the land subject to a statutory easement. Other searches for encumbrances encompass Town Planning searches and checks with the Personal Property Securities Register. For sellers, full disclosure is advisable to reduce the risk of a buyer terminating the contract. For buyers, conducting these searches can uncover any encumbrances that the seller may not have disclosed.
So, if you need legal assistance with solving any encumbrances, you can write via chat, describe your problem using the Contact Us form, or call us on 1300 185 636 and one of our assistants on the other side of the line will let you know how we can help you. Even if this is beyond our legal permission, it is a quick and free step you can take right now to get closer to solving your issue.
