In a recent case Huang & Anor v Ceylan  NSW, the vendors of a two-bedroom unit had created a third bedroom by constructing a wall on a side of their media room – however this was completed without the approval of the local council.
It was determined that this amounted to a breach of an implied statutory warranty. As such, the buyers were entitled to rescind the contract of sale and have their deposit returned, in full.
What we can learn from this case – it serves as a warning to buyers and sellers in relation to the risks associated with buying and selling properties where illegal building works have been undertaken. And, it displays how the courts will classify certain building works and the disclosure obligations for vendors.
The implied warranty in the Conveyancing (Sale of Land) Regulations 2017 provides that:
The vendor warrants that, as at the date of the contract and except as disclosed in the contract that…there is no matter in relation to any building or structure on the land (being a building or structure that is included in the sale of the land) that would justify the making of any upgrading or demolition order.
Whether a ‘matter’ was in existence was crucial as to whether a breach of this implied warranty occurred. In this case the judge found that this exists “depends upon the state of the building itself”.
The building of the new wall was found to not be compliant with the State Environmental Planning Policy (Exempt and Complying Development Codes) 2008 – “it involved the construction of a new wall (containing a doorway), rather than the replacement or alteration of an existing one” and was an “enclosure of an open area“.
As such, the local council was entitled to make an order requiring removal of the internal wall and the reinstatement of the unit in accordance with the council approved plans and, consequently, a matter “that would justify the making of any upgrading or demolition order” existed.
So, the breach of the implied warranty was found to have occurred and the buyers were entitled to rescind.
Now, this case would arguably have had a different result if the contract had disclosed the creation of the third bedroom was not approved by the local council and if the buyer had acknowledged that they were purchasing the residence subject to this non-compliance issue.
Should you have concerns about unapproved building works with a property you are buying or selling contact the team at Morse Building Consultancy to determine your next step.
The content of this article is a general guide to the subject matter. Expert advice should always be sought about your specific circumstances.