May 2016

Selling land for unpaid rates and charges: 8 important questions for vendor councils to consider

It’s a sad fact that councils sometimes need to sell land to recover outstanding rates and charges. This is almost always distressing to the owners, who often try to obstruct the sales process. The sale is often complicated further because the vendor council isn’t usually in possession of the land that’s being sold. 

If you’re faced with this situation, here are eight questions we think you should always ask before exercising the statutory power of sale.

1.  Have you complied with the vendor disclosure requirements?

All vendors of land in New South Wales must comply with the vendor disclosure legislation. This is challenging enough for any vendor. It becomes more challenging still when you’re a statutory chargee with no, or limited, knowledge of the land you’re selling.

For this reason, you should always instruct your lawyers to obtain a full set of statutory enquiries to ascertain whether any government proposals apply to the land, such as road widening or acquisition proposals. These must be disclosed in the contract for sale or the purchaser may be able to rescind the contract and recover their deposit.

2.  What’s actually being sold?

To avoid any dispute for sale, you should always identify all improvements (such as a house, garage, shed) erected on the land and describe them carefully in the contract for sale.

3.  Are there any encroachments?

Engage a surveyor to inspect the property and compile an identification survey report showing any encroachments by, or onto, it – so long, of course, as you can obtain access. Doing so will prevent purchasers from making objections, requisitions or claims.

4. Have you disclosed any strata levies?

It’s usually the purchaser’s duty to contact the managing agent and obtain a certificate of the strata levies. However, in the case of a statutory sale, we’d recommend doing this yourself before you sell. This will bring transparency to any financial liability the landowner owes the owners’ corporation and will help make sure there are no disputes about the apportionment of strata levies after contracts have exchanged.

5. What will happen to any rubbish?

If you can’t obtain access, you can’t possibly know what goods the landowner has on the land. To save yourself the trouble and expense of having to remove any clothes, furniture or other items after the sale, the contract should always provide that the purchaser takes the land as is. In other words, it’s their responsibility to remove anything that gets left behind.

6.  Where is the certificate of title?

On completion, the vendor is typically required to deliver the certificate of title to the purchaser. Where the land is mortgaged, the landowner’s mortgagee will hold the certificate of title. But, if there is no mortgage, the landowners will most likely hold their own certificate of title. Obtaining it may be difficult, but the good news is that purchasers do not need the certificate of title.

When selling land for unpaid rates, you will need to prepare a Transfer by a local council instead of the usual Transfer. Lodging this at Land and Property Information gives the purchaser an indefeasible title to the land without the need for the landowner’s certificate of title. However, because most purchasers aren’t aware of this, you may consider including a special condition in the contract for sale to prevent delays and assure them they will be receiving a good title.

7.  How will you gain possession of the land?

To complete the sale you will need to have vacant possession of the land. But gaining the landowner’s cooperation for this is one of the biggest challenges councils usually face.

Section 713 of the Local Government Act 1993 doesn’t give councils an express right to possession when using their statutory power of sale. However, in Harden SC v Richardson [2012] NSWSC 622, the NSW Supreme Court held that councils can take the matter to the Supreme Court, as they have an implied right to possession of the land. The cost of these proceedings can be recovered from the proceeds of the sale under s 718.

After exchanging contracts, you should always notify the landowner that they need to vacate the land by the completion date. If the land owner is obstructive, you should take action as soon as possible. However, you can’t act before exchange because s 715(2) gives the landowner the opportunity to pay all outstanding rates and charges before the fixed time for sale.

8. What is the risk of damage to the land?

When a landowner is ordered to vacate, there is always a risk they will damage the land or its improvements. Risk of damage is regulated by law and the purchaser may be able to rescind
the contract or require you to reduce the price
in cases of extensive damage to a dwelling.

You can only contract out of these requirements where the land being sold does not contain a dwelling house.

And finally…

Selling a property to recover outstanding rates or charges is rarely a straightforward process. But, by asking and addressing each of these questions, you should be able to effect the smoothest sale possible.

Author: Peter Barakate