A purchaser bought a property at auction.  The Auction Agreement recorded that the purchaser was deemed to have accepted the vendor’s title.  The purchaser was under the impression that the title was fine, as there was nothing noted in the agent disclosure documents provided, and accordingly did not seek any advice regarding the title prior to the auction.

Upon instructing a law firm to complete the conveyancing for the purchase, the law firm discovered that the title was defective as it was a cross lease that had an extension added to the building which was not recorded on the title plan. 

Because of the clause confirming that they had accepted the vendor’s title, the purchaser did not have the ability to raise any issues with (known as ‘requisitioning’) the title and require the vendor to remedy the defect.  Accordingly, the transaction became more stressful and costly than the purchaser expected as it became their problem to pay for a new title plan to fix the issue. 

When considering purchasing a property, it is important to seek advice on the title prior to proceeding to ensure that the title is not defective.

If the vendor is aware of the defect this should be included in the agent’s disclosures.  Further, certain clauses in the Agreement for Sale and Purchase will need to be included. 

There are different ways a title could be considered defective, and we explain these as follows:

Easement Refers to the Wrong Title

A common type of easement is a right of way, which broadly grants rights and responsibilities enabling access to or rights to use parts of one property, through another. Such easements usually define the area and the titles against which they apply to. Where the area or titles are not specified, or specified incorrectly, this can lead to a defective title.

Dwelling or Structure Sits Outside of the Property Boundary

While it is usually assumed that the dwelling, garages, or decks are built entirely within the boundaries of the property, we commonly encounter properties where a deck or garage encroaches on the neighbouring property’s boundary. This is referred to as a boundary encroachment and may be corrected by either seeking a boundary adjustment, registering an easement over the neighbour’s title giving you the right to encroach, or applying to the Court for remedy.  Read more about this here.

Instrument on wrong title

It is important to check whether instruments, such as a mortgage or easement, are registered against the right title. Although rare, we have encountered titles where the mortgage instrument is registered against the wrong title.

Cross Leases and Defective Titles

Cross lease titles commonly result in defective titles, as in the example above. Read more about defective cross lease titles here. 

Title Requisition Clause

The standard title requisition clause in Agreements for Sale and Purchase can give purchasers a right to cancel the Agreement. The clause has limited scope however but can be used by a purchaser in situations where the title they receive is materially different from the title the vendor purported to sell or is defective in some way (for example: had errors in an easement instrument, or a cross lease or unit title where the property has been built on outside the footprint on the title). 

Read more here about these clauses.

Titles and instruments registered on them are an important part of due diligence when purchasing a property.  Importantly, depending on the nature of the defect, banks will often not agree to lend on a defective title,

It is vital to take legal advice before signing an Agreement for Sale and Purchase, as there are many issues, like the ones discussed above, that can trip up those who are not familiar with the law or the sale and purchase process.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.

Laurie Pallett and Raiyan Azmi