An investor put his rather run-down investment property on the market.

He knew there were piles at the property that needed replacing, but he didn’t want anything to “hold up” the sale, and thought that potential buyers would need to do their own investigations and find out any issues for themselves.  He decided he wasn’t going to say anything to the agent or potential buyers about the issue.

Following the completion of settlement of the sale, the buyers discovered the issue with the piles and came back at the investor (the seller) claiming their costs for fixing the piles.  The buyers were able to prove that the seller knew about this issue as they could see that he had done a “patch up” job within the last few years. 

This ended up costing the seller significantly more money, including legal fees, than if the seller had just disclosed this work before listing the property for sale. 

Sellers need to be aware that if there is any defect or other matter that they know about in relation to the property being sold that affects the property, then these must be disclosed to prospective buyers.  Real estate agents also have very strict obligations in this regard.

A seller cannot ‘hide’ these things from a buyer.  These sorts of matters, along with consents for any works done to the property that required building consent, will show up in a Land Information Memorandum from Council. 

To ignore this disclosure obligation means the seller risks being in breach of their warranties and undertakings in the standard Auckland District Law Society Agreement for Sale and Purchase, used in most transactions. 

It is important that sellers are aware of all their obligations under the Agreement, including in relation to passing on any notices or demands from local authorities, tenants, or any other party that “directly or indirectly affect the property.”

If you are thinking of selling your property, and you are unsure about your obligations, you should take legal advice before proceeding.