Buying or Selling Property in WA – Important Due Diligence Considerations

When buying or selling property in WA it is important that both the seller and buyer know that the structures on a property have been constructed appropriately and that the structures have been approved by the local Council or Shire. Structural integrity is often not the only consideration.  Where this is not the case – expensive challenges can arise. Rarely is this issue considered!

So What are the Rules on Building and Renovating?

The Building Act 2011 in WA states that no building work can be undertaken without a building permit. Further, a person must not do building work unless

(a) a building permit is in effect for the building work; or

(b) a building permit is not required for the building work

The WA Building Commission refines the above by stating that in general terms a building permit is required for building work that includes:

• the construction, erection, assembly or placement of a building or an incidental structure;
• the renovation, alteration, extension, improvement or repair of a building or an incidental structure;
• the assembly, reassembly or securing of a relocated building or a relocated incidental structure; or
• the changing of ground levels and site works associated with one of the above points.

The Act also requires that all buildings are to be completed in accordance with applicable building standards. This obligation sits squarely with the named Builder where a building permit has been issued or each owner of the property where work has been done without a building permit.

The act sets out a range of circumstances where a building permit is not required and these should be carefully reviewed if they are being relied on. In general, these exemption apply to minor structures, small carports, sheds and similar, remote rural locations and;

• Renovation, alteration, improvement, repair or maintenance of a building or incidental structure if the building work
  • will not adversely affect the structural soundness of the building or incidental structure and does not include —
    • an increase or decrease in the floor area or height of the building or incidental structure; or
    • underpinning or replacement of footings; or
    • the removal or alteration of any element of the building or incidental structure that is contributing to the support of any other element of the building or incidental structure;

and

(b) is done using materials commonly used for the same purpose as the material being replaced; and

(c) will not change the use or classification of the building or incidental structure; and

(d) will not adversely affect the safety and health of the occupants or other users of the building or incidental structure or of the public; and

(e) will not affect the way in which the building or incidental structure complies with each building standard that applies to the building or incidental structure; and

(f) is not work of a kind to which section 76, 77, 78 or 79 relates; and

(g) is not subject to an order, agreement or permit under the Heritage Act.

Regardless of any exemption that may apply there is always a requirement under s. 37(2) of the Building Act for the owner to ensure that the building or incidental structure, when completed, complies with each applicable building standard.

While there are some exemptions, building work in excess of $20,000 or where a Building Permit is required, the work must to be undertaken by a Registered Builder or a Registered Owner Builder.

So the fall-back position is, unless specifically exempted, building or renovation work will require a Council/Shire permit and will need to be undertaken by a Registered Builder or Owner Builder. All work regardless of whether a permit is issued or not must comply with the Building Code and Australian Standards.

So What is the Challenge for Sellers and Buyers?

The challenge for Buyers and Sellers is that there is potentially an information void. How do sellers and buyers know that the buildings on a property have been approved by the relevant Council/Shire when required?

Importantly there is no mandatory seller disclosure statement when selling property in Western Australia! It has been argued that the General Conditions of Sale do not require the seller to warrant that the structures on a property have been appropriately approved or constructed.

Part of the solution may be as simple as requesting a copy of all of the building permits that have been issued by the local Council/Shire and compare these to what has been built on site.

The challenge is that these key building permits and plans will generally only be provided to the owner of the property, so buyers cannot easily and independently obtain these documents. Further, these documents can usually only be obtained after an application is made by the owner, the prescribed fee paid and an elapsed time period of usually circa 2 weeks. This can be a challenge during the tight time frames associated with many offer and acceptance contracts.

What happens when there is a structure or renovated structure on a property where the required Building Permit has not been obtained?

The reality in WA is that there are literally thousands of structures and renovations which have been undertaken without the required Council/Shire approval and or by a Registered Builder. Where the structure or renovation has been undertaken professionally and in accordance with the Code and Standards, most Councils/Shires have a relatively straight forward process to obtain retrospective approvals. In essence, similar documentation which should have been lodged with the Council/Shire to obtain the pre works approval will need to be prepared to obtain the retrospective approval.

The real challenge however is where the construction work has not been built to code or standard or breaches Council requirements, expensive remediation work may be required.

What is the Impact to Sellers and Buyers?

If the existence of non-approved and non-compliant structures is identified during the sale process, sellers may be forced to defer settlement until such time as retrospective approval is obtained. Securing this approval and undertaking any required remediation work in a condensed time frame may be a challenge.

Similarly, buyers who acquire properties with non-approved and or non-compliant structures may be forced to apply for retrospective approval. Securing this approval may necessitate costly remediation work which they may not be able to recover from the seller.

Will Pre Purchase Building Inspections Resolve the Problem?

No. Pre purchase building inspections are tightly defined under Australian Standards and the often used REIWA pre purchase building inspection clause. Essentially the inspections are limited to identifying existing structural defects. Construction items which represent a non-compliance with the Building Code and or Australian Standards will often be insufficient to trigger a Structural Defect clause. Building inspectors are almost never provided with previously issued Building Permits and have no authority to obtain them from the local Council/Shire so they are not in a position to review whether the structures on site have been approved.

So What is the Solution? 

There are several potential solutions.

The first option is for the seller to obtain copies of the Council /Shire building permits prior to commencing the sale process. The seller can then assure for themselves that all of the structures on a property have the necessary building permits. Where required, the seller can seek assurances from a building inspector that these structures satisfied the Building Code and Australian Standards applicable at the time the structures were built or renovated.

Assuming the seller undertook the above, these documents could then be provided to buyers to provide them with confidence that the structures on the property have been approved and comply.

As an alternative there are several Lawyers/Agents/Buyers Advocates  that incorporate within Offer to Purchase Contracts additional warranties from the Seller whereby the Sseller warrants all of the structures on the property have been built in accordance with Building Permits, the Building Code of Australia and Applicable Standards.  Where appropriate buyers should seek independent legal advice.

Finally, there are insurers such as Stewart Title, which provide insurance cover to buyers against building works which have been constructed without the necessary permits or where the work is not in accordance with the permit, Code or Standard.

Essentially where there is full and open disclosure both the Seller and Buyer can proceed with confidence.

Summary

1. All building work needs to be undertaken in accordance with the Building Code and or Standards.
2. A considerable proportion of new construction work and or renovation is likely to require a Building Permit relevant from the local Council/Shire
3. Work in excess of $20,000 or where a Building Permit is required needs to be undertaken by a Registered Builder or Registered Owner Builder
4. Determining whether or not the structures on a property have been approved by the Council/Shire can be a challenge as these documents will only be released to the owner of the property
5. There are a range of solutions which can be employed to protect stakeholders from the risks of unapproved structures or building works which have not been built in accordance with the permit, Code or Standard

Build, Buy, Invest in property with confidence. 

Ph 9240 8855 Web: www.houspect.com.au/wa Email: enquiry@houspectwa.com.au