ConveyancingUnderstanding a Seller’s Body Corporate Disclosure Obligations

September 14, 20230

Understanding a Seller’s Body Corporate Disclosure Obligations & The Role of Body Corporates In Community Title Schemes – Queensland

 

In Queensland, it is a legal requirement for a Seller to provide full disclosure regarding body corporate information to the Buyer before entering into a contract for the sale of an existing or proposed  lot in a community title scheme.

Sellers must provide a disclosure statement in accordance with Section 206 of the Body Corporate and Community Management Act 1997 (BCCM Act) when selling a residential or commercial property within a Community Title Scheme (CTS). This must be done prior to the Buyer signing a contract.  

The Contract also requires that the Seller gives a number of warranties under Section 223 of the BCCM Act in relation to the body corporate disclosure statement and information, unless expressly stated otherwise in the contract.

Specifically, the Seller warrants that, at the date of the contract:

  • There are no latent or patent defects in the common property or body corporate assets other than:
    • Defects arising through fair wear and tear;
    • Defects disclosed in contract; and
  • The body corporate records do not disclose any such defects; and
  • There are no actual, contingent or expected liabilities of body corporate that are not part of its normal operating expenses; and
  • The body corporate records do not disclose any such liabilities; and

Broadly speaking, the Seller warrants that there are no circumstances in relation to the affairs of the body corporate likely to materially prejudice the Buyer.

These warranties, cover information that is not in the section 206 disclosure statement and accordingly, it is inadequate to merely state ‘refer to disclosure statement’ in this section of the contract.

Despite its importance, there is a concerning amount of disregard among some Sellers and their agents in performing the duty of providing full disclosure under both sections 206 and 223 of the BCCM Act. Failure to comply with the legal requirements surrounding disclosure statements can lead to disastrous consequences for Sellers and real estate agents alike.

It is therefore important that both Sellers and agents have a good understanding of the requirements prior to entering into a contract of sale.

What Is CTS ( Community Titles Scheme) ?

A community titles scheme comprises of:

  • at least 2 lots
  • common property
  • a single body corporate or
  • a single community management statement.

What Are The Disclosure Obligations?

A Seller of an existing or proposed lot on a community titles scheme must ensure compliance with two key disclosure requirements:

1. A signed and substantially complete disclosure statement under section 206 of the BCCM Act.  The minimum information that must be contained in the section 206 disclosure statement includes:

    • A real property description of the lot
    • The current levies for the lot
    • The name, address, and Community Title Scheme (CTS) number of the body corporate
    • Whether the new lot owner will be responsible for any improvements on common property
    • The name of the Secretary and the Strata Manager of the body corporate and their contact details
    • Whether the body corporate holds any assets

Other information will also at times be included, such as financial statements, statutory warranty information and details of the body corporate insurance. However, this is dependent on each individual Disclosure Statement provided by the Body Corporate.

2. Any further disclosure with respect to statutory warranties under section 223 of the BCCM Act.

While bodies corporate will typically provide the Seller with information for a section 206 disclosure statement, the onus is on the Seller and their agent to ensure that the information contained is complete and accurate.

It is not guaranteed that the section 206 disclosure statement issued by the body corporate manager will provide information to allow the Seller to provide the relevant disclosure under section 223 of the BCCM Act.  For this reason, we recommend that Sellers and agents engage a search agent to inspect the body corporate records and prepare a full Seller’s disclosure statement that covers both sections 206 and 223 of the BCCM Act.  It may cost a little extra to have the full Seller’s disclosure statement under Sections 206 and 223 prepared up front, however the contract could be at risk of termination by the Buyer, resulting in a lot more expense and heartache for the Seller, if the disclosure statement is not signed, is not substantially complete, or contains incorrect information and the statutory warranties and contractual rights section of the contract has not been adequately completed.

The section 206 disclosure statement should be signed first by the Seller, and then the Buyer (the reverse order that a contract of sale is signed). It is a legislative requirement, and it cannot be excluded by agreement.

It is also a good idea for Buyers to do their own due diligence, and not rely solely on the information in the disclosure statement. For example, the Buyer could conduct their own inquiries by inspecting the body corporate records or the community management statement. This would be at an additional Cost to the Buyer but is cheap insurance to ensure that the Buyer is fully aware of the state of the body corporate and limit any nasty surprises post settlement for example, special levy notices being issued which the Buyer has not budgeted for.

A special condition such as a Due Diligence condition can be inserted in the contract giving the Buyer the right to terminate the Contract if they are not satisfied with the results of their due diligence.

What Are The Consequences Of Non-Compliance With These Obligations?

Where the Seller has failed to provide the Buyer with a disclosure statement that is signed, substantially complete and accurate, the Buyer has the right to terminate the contract prior to settlement. This right to termination will also arise where the Buyer is unable, despite reasonable efforts, to verify the information contained in the statement. The Buyer must provide written notice of termination within 14 days of them having received their copy of the contract.

Similarly, if a statutory warranty is breached, then the Buyer will be entitled to terminate the contract. In relation to proposed lots, the Buyer’s right to terminate will be available until no later than 3 days before they are otherwise required to complete the contract, while for existing lots, Buyers will have until 14 days after receiving their copy of the contract.

Importance For Real Estate Agents

A breach of either the disclosure statement requirements or statutory warranties will also result in commission not being paid to the Seller’s agent.

It is therefore essential that the Seller’s agent ensures that any disclosure statement obtained from the body corporate is checked thoroughly, and that further investigations are made to ensure that any concerns regarding the statutory warranties are included in the contract itself.

So What Is A Body Corporate?

A body corporate is a legal entity established when property is subdivided and registered as a community titles scheme. All lot owners become members of the body corporate when they buy their lot.

A community titles scheme allows lot owners to privately own part of the property (their lot), and also share ownership of common property with other lot owners. It must comprise at least two lots, so large unit complexes are community titles schemes, but so are smaller apartment complexes and duplexes.

What Does A Body Corporate Do?

There is more than one type of community titles scheme, and there are some variations in the laws governing how the body corporate is to run things.

  • The body corporate plays an important role in administering the common property and assets of the scheme for the benefit of all of the owners, and to undertake functions required under body corporate legislation.  It is responsible for a range of tasks including keeping records of the body corporate, collecting levies and contributions, preparing financial statements and budgets, organizing insurance, making and enforcing by-laws to govern the administration of the scheme, including use of the common property, the management of body corporate assets and how owners and other people living in the scheme use their lots, resolving disputes between lot owners, maintaining common property and managing any assets pertaining to the body corporate, assisting lot owners via an insurance provider as to the building insurance and insurance of the common property. (Please note that Buyers and lot owners should always make their own inquiries as to the extent of any insurance policies in place and making decisions about levies for the upcoming financial year, and other contributions from owners. These include;
    • An administrative fund levy to cover the cost of administering the scheme
    • A sinking fund levy to cover any anticipated capital expenditure, major capital items and major structural repairs
    • A special levy might be imposed in the case of an unexpected expense not accounted for in the sinking fund budget

It is important for lot owners to understand their rights and responsibilities, and to work together with the body corporate to ensure that the scheme remains well-maintained and attractive to potential Buyers or tenants.

How Does The Body Corporate Make Decisions?

The body corporate makes decisions about the above at an annual or extraordinary general meeting and through the body corporate committee of members who are elected at the AGM.

More Questions?

The law governing community titles schemes in Queensland is complex, and whether you are buying or selling, it is critical that you have a good understanding of your rights and obligations. Our experienced, friendly conveyancing lawyers are happy to chat about body corporate disclosure statements, or any other aspect of Queensland conveyancing law – reach out to us today!

Disclaimer. The legal content contained in this article has been provided for general interest only. It does not constitute legal advice.

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