Unit Titles Act: Seller beware!

Most people will be familiar with the old legal principle, ‘buyer beware’ (caveat emptor). This remains a central principle in property transactions. However, it is also true that a seller needs to be careful that anything they provide to a buyer is correct and not misleading. A lack of care can lead to an unexpected legal claim down the track.

This is particularly relevant if the property is a unit title. The Unit Titles Act 2010 requires sellers to disclose extra information about the property, before the contract is signed and also before settlement. The purpose is to give greater information to buyers who are buying into an apartment complex. For example, the building could be earthquake prone or leaky, or the unit owner could be facing a special levy from the body corporate. These buyer protections cannot be contracted out of. 

The flipside of these buyer protections is that the ‘caveat emptor’ principle is eroded: with the Unit Titles Act, the buyer is entitled to rely on the information provided by the seller, meaning the seller carries greater risk of being liable for inaccuracies. Providing incorrect information, even if unintentionally or relying on a third party, can carry significant consequences: the buyer may be able to cancel the contract, or the seller may face a costly claim for breach of vendor warranty.

What a seller must disclose

The owner of a unit title must give the buyer 2 types of disclosure statements when selling the property. A buyer is legally entitled to rely on that information being correct (section 153), so it is important to get it right. The two disclosure steps are:

1. Pre-contract

Section 146 of the Unit Titles Act requires a seller to provide a pre-contract disclosure statement (PCDS). It covers a number of items such as:

• Whether the building is earthquake prone

• The long-term maintenance plan and copies of body corporate meeting minutes

• Whether there are weathertightness issues (i.e. a ‘leaky’ building)

• Insurance information

Normally the body corporate manager will prepare this, for a fee. If you don’t have one, you may need to prepare it yourself or have the agent or lawyer prepare it, using the template provided by MBIE.

A very important note: the PCDS is provided to buyers by you as the seller, not by the Body Corporate. The standard PCDS is not usually signed by the body corporate chair. This means that it is your responsibility to make sure the contents are accurate. The average apartment owner may not know about the ins and outs of the condition of the complex and may not attend every body corporate meeting. To protect yourself, you can:

• Ask the body corporate chair to sign the PCDS, or have them confirm in writing that the contents are correct;

• Verify the statements yourself, by checking the body corporate meeting minutes and any building reports;

• Go to the BC manager, or your lawyer, to seek clarification if you have any doubts about whether the statement the BC has prepared is correct.

2. Pre-settlement

Section 147 of the Unit Titles Act requires a seller to provide a pre-settlement disclosure statement (PSDS), at least 5 working days before the settlement date.

The PSDS mainly contains information about levies and whether they have been paid. It is also usually prepared by the body corporate manager. Unlike the PCDS, the PSDS is accompanied by a certificate from the body corporate stating that the information is correct. This gives a seller greater assurance.

Make sure your levy payments are up to date before you sell! The body corporate can withhold the PSDS if any debts are unpaid. If there is a debt owing, you may be able to agree with the body corporate that you will pay the levies from the sale proceeds.

Consequences of poor disclosure or non-disclosure

If the required disclosure is inaccurate, late, incomplete or not provided, the buyer has quite significant rights under the Unit Titles Act. Sections 149-151A sets out a buyer’s rights in each of these situations, up to and including cancelling the contract.

Within those sections, there is some limited protection afforded to the seller if the disclosure was incomplete or inaccurate, but only if the seller openly acknowledged that at the time, or they could not find the required information after reasonable efforts. To rely on this clause, a seller would be well advised to be upfront at the time of the disclosure and put the reasons for incomplete information in writing.

Importantly, the Unit Titles Act disclosures are bolstered by the vendor warranties contained in a standard Law Association sale and purchase agreement (see clause 8 of the 11th edition). Those warranties say, among other things, that the pre-contract disclosure is correct as at the date of the agreement.

A diligent seller should check they are comfortable the unit title warranties are correct. This includes checking that they are still correct when the contract is signed, if it takes several months to sell the property. Vendor warranties are enforceable after settlement has happened. This means that if a buyer later finds out that the seller’s disclosure was inaccurate, they may pursue the seller for breach of warranty.

If you have any questions about selling a unit title, please contact our team:

04 4953747

admin@devinelaw.co.nz