Unconsented Works – to tell or not to tell your Bank and Insurance Company

A couple fell in love with a beautiful house.  They particularly loved the recently renovated kitchen and ensuite, and the indoor/outdoor flow onto a newly-built deck.

Sensibly they carried out their due diligence on the property, which included obtaining a LIM report from the local council.   

A LIM report includes (amongst other things) permits and building consents that have been issued, and identifies if consents have had a Code of Compliance issued or not.  A LIM report will only provide information that is known to the Council, and does not show unauthorised additions or alterations.

When the couple's lawyer reviewed the LIM report it was discovered that a wall had been removed when renovating the kitchen and this work did not have consent. As a result of this, their lawyer advised them that they needed to notify their mortgage and insurance providers before submitting their offer.

Even if work was done to a high standard by qualified tradespeople they could find themselves in a difficult situation if council "sign off" (certification) was never attended to.

In particular, banks have strict requirements for those people with a high loan to value ratio.  This is because if there is little equity in the property, the bank wants to know that there is enough security in the property should they ever need to carry out a mortgagee sale.   Unconsented works can cause a delay in a sale and therefore a bank can view this as a risk, and will be less likely to lend money against that property.

An insurance provider may also not be happy with the fact that the kitchen renovations do not have consent and they may find it difficult to obtain adequate insurance cover.  They did consider not telling their insurance provider, however they realised that if they did this, there was a risk that should they need to make an insurance claim in the future, if they had withheld this information their claim could be declined and their whole policy voided. 

In addition, if they could not get adequate insurance then the Bank would not lend them the money.  If they had signed the Agreement for Sale and Purchase and could not draw down their loan and not be in a position to settle, they would be in breach of their obligations under the Agreement, which could result in significant stress and additional costs.

Even if their mortgage and insurance providers were happy with the renovations not having the correct consent, you do not know how this would be viewed by prospective purchasers in the future, when it comes to selling the property.  

The couple would need to take into consideration that if they proceeded to purchase the property with works that were unconsented, then they may be liable for the cost of the consent process when they eventually sell the property themselves.

After taking all of this information into account they really wanted to buy the property, and with the assistance of their lawyers, the Vendors agreed to rectify the lack of building consent before settlement.

You should always seek legal advice should you discover there are unconsented works on the property prior to signing any Agreement for Sale and Purchase.

It is important to disclose to your mortgage and insurance providers any information you have learnt about the property as part of your due diligence investigations.