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Sight unseen - the legal nitty-gritty
Category Property News
Never was the adage, the devil is in the detail, more applicable than in real estate contracts during lockdown when fulfilling key contractual conditions has been extremely difficult and even impossible.
In the rental arena, lease agreements have had to be signed without prospective tenants having had the opportunity to view the properties and they have moved in without a pre-inspection which is usually conducted along with the agent and signed by both parties.
"It could potentially be problematic if significant undisclosed defects are found after they have moved in which is why it's especially important to be as thorough and careful as possible before committing to this type of agreement," says Arnold Maritz, co-principal for Lew Geffen Sotheby's International Realty in the Southern Suburbs.
He adds that if there is an agent involved in negotiating the lease, the agent has a duty to disclose as much information to the prospective tenant as possible.
"Tenants must bear in mind that the reality is that few properties are perfect, most have some minor defects, and will certainly need maintenance from time to time.
"However, if the defects are of such a significant nature as to make the property uninhabitable, the tenant would have a chance to rely on some sort of misrepresentation in order to get the lease cancelled."
David Dewar, director of Thomson Wilks Attorneys, Notaries and Conveyancers, explains: "If the agreement is subject to viewing then the tenant is within his/her rights to view and decline the lease.
"The wording for the clause is important and it should go further than simply stating 'viewing' which is broad and open to interpretation; it should say something along the lines of 'subject to acceptance of the property after viewing'.
"The property may be suitable but the rent may be too high for its condition, so a reduced rent may be the appropriate solution."
"As well as that, the property still has to be fit for the purpose that it was let, so defects need to be fixed as this, depending on the situation, could be grounds to cancel the lease, or a shorter lease term is used as a stop gap.
"If the owner was aware of the defects and hid them, and the defects are serious, then they would impact on the very nature of the lease.
"Any agent who does not properly disclose the condition fully to a prospective tenant could also be held liable for the condition.
"However, if those defects are not noted then the tenant may not be able to show that they were there prior to occupation and may be asked to pay for them as supposed damages when the lease ends, if the landlord is not an ethical person."
Maritz says that what normally happens in practice if the defects aren't major is that after some discussion and negotiation, the lessor agrees to get some, if not all, of the defects repaired, and the lessee accepts that some will remain for the duration.
"There is always the option to renegotiate the lease and establish time-lines in which to fix defects and also to arrange for reductions in rentals while that is being done."
Dewar cautions tenants to ensure that this is in writing so that it is clear what was agreed and because the lease will likely have a clause in it requiring any alterations to be reduced to writing and signed by both parties. It is a tricky area of law because of the multitude of permutations and variables that will change from situation to situation, so consulting an attorney is advisable if the tenant or owner at all unsure.
"If the landlord won't do the repairs, then the Consumer Protection Act (CPA) can be used to cancel the agreement as a fall-back position but bear in mind that the landlord is entitled to reasonable damages if that route is followed.
"Again, I must advise prospective tenants to consult an attorney as it's always better to know your rights beforehand than to find out after the fact that the wrong action was taken. A stitch in time saves nine."
"We've concluded several leases under the lock-down conditions," says Maritz, "and the tenants relied heavily on photographic material, as well as comprehensive representations from the owners and agents which has been extremely thorough so we are not aware that there have been complaints of this nature."
The same applies to sale properties which Dewar says that these transactions can also be safely concluded, although whilst it is implied that there has to be acceptance of the property condition after viewing, it is better to set this clause out clearly rather than to leave it open for interpretation.
"Homes have been sold subject to physical viewings during lockdown," says Maritz. "We have worked closely with attorneys who have kindly provided the necessary clauses to protect the parties concerned, and are not aware of any cases where purchasers cancelled after not being satisfied with the outcome of the viewings.
He concludes: "It could get tricky if the correct clauses were not contained in the sale agreements, and this would be very unfortunate, as purchasing a property is such a significant transaction, both financially and emotionally with much effort and time invested in the process."
Author: Lew Geffen Sotheby's International Realty