Tom's defective property title

Tom purchased his cross lease property years ago. He decided it was now time to advance his career which meant he needed to relocate overseas. Tom had been given an excellent job opportunity that required him to move within three months. Tom decided he would sell his property before leaving the country. He engaged a real estate company who advised him that his property was suitable for sale by auction. The property was in a good location and condition and a sale by auction should produce a good price before his imminent departure. Tom committed to an auction date after three weeks of marketing.

Draft auction terms were sent to Tom’s solicitor who enquired as a matter of course whether he had carried out any renovations to the property. Tom advised his solicitor that he had undertaken renovations to the property. He confirmed that all of the work had a building consent and final code compliance certificate from Council. He reviewed the flats plan and confirmed that the “footprint” of the flat as shown on the flats plan for the property had not changed.

An hour before the auction Tom’s solicitor received a telephone call from Frank’s solicitor. Frank was looking to attend the auction. Frank had engaged his solicitor to undertake a pre-auction review of the property documents. Frank’s solicitor claimed that the flats plan was incorrect because the lounge wall and bedroom wall on the east side of the property had been extended. When contacted by his solicitor, Tom said that the lounge and bedroom walls had been extended out “about a metre” but that he didn’t think it would change the flats plan because it “looked basically the same”. His solicitor advised Tom that the flats plan was incorrect and that the title was now defective and should be updated.

The agents was then advised of the issue and prior to the auction was obliged to notify at the auction that the title was defective and the flats plan incorrect. The last minute disclosure gave no time for other potential bidders to investigate the problem, created a great deal of uncertainty and undoubtedly discouraged a number of potential bidders.

The auction ended with very few bids and the reserve was not reached.

Unfortunately Tom had failed to appreciate the adverse effect on his title of enlarging his flat. As a result of the defective title, demand for his property on auction day was reduced. Tom ended up selling the property for less than the expected price.

By: , Property Law with Rachel Lee, Davenports Harbour Lawyers

Issue 93 November 2018