Strata Property - Agent Held Back Important Information about Upcoming Strata Expense

Countryboyperth on 12/06/2023 - 23:08
Last edited 12/06/2023 - 23:46 by 1 other user

Hi all, thanks in advance to those who offer constructive advice.

My offer for a strata property was accepted 4 weeks back. Before signing the contract, the real estate agent stated that there is going to be an extraordinary expense of say $20k to fix the building and the property has been priced to reflect that. I had 4 weeks to get the finance approval which happened on Friday last week.

Today, the agent forwards me a letter written by the Strata company that the expenses are going to be $60k. The letter is dated 2 weeks before, but the agent emailed me today and post finance approval. If the letter was given to me as soon as it was received, bank may have declined the finance approval, given I would have struggled to organise another $40k extra.

I seek your advice - What should I do now and what are my options. I am a WA resident and the property is in WA.

Thanks.

Home & Garden

Comments

  • Hybroid on 12/06/2023 - 23:16
    +18

    Speak to your solicitor/lawyer tomorrow morning to understand your potential options and current status of the contract. We have no visibility of your details.

    It does sounds like major red flags and should get out of it ASAP before it bcomes $100k+++.

    • Sinnerator on 13/06/2023 - 08:49
      +3

      You nailed it, something this important should go straight to their lawyer.

  • AT1013 on 12/06/2023 - 23:24
    +3

    Was your offer subject to anything? or just unconditional offer? Maybe there's some room there should the bank "withdraws" the approval, in light of the new information. Do you want to proceed with the sale or do you want to get out of it?

  • MrFrugalSpend on 12/06/2023 - 23:46
    +6

    Oh dear… you need a lawyer. However that's not going to be cheap either.
    Get your own legal advice, with detailed review of what was in the contract terms, what was in the Body Corporate notices / levies and when, as this is a curly one, hopefully there is something in there looking at the timing to help you, but if nothing jumps out, (and you can make the finance to proceed + pay the strata bill), don't spend too much and make your losses worse because my gut feel as a property professional with some bachelor level and post-grad legal and property studies is you are not in a good position and are contractually committed to proceed (however this is not legal advice):… (PS - when is settlement?)

    If you said the contract was signed 4 weeks ago, (a) was the letter from the strata dated 2 weeks ago from today or (b) 2 weeks before you signed the contract? I've based the following on the assumption you mean 2 weeks ago from approx today, which means you had already committed to buy and signed the contract before this was known to the agent / before the date of the letter (albeit subject to finance).

    Firstly, you have a major problem - it's called caveat emptor. Google that. In summary, let the buyer beware - i.e. in a strict contractual sense, you are a bit screwed. You have got to do your due diligence on buying anything major before the contract, or before going unconditional where you had specifically outlined what it is conditional on and what the seller must do to aid your investigations, not after. For example, it is at that point you make it subject to that quote for the repairs being received and your acceptance of the cost, not just subject to finance, or commonly subject to and conditional upon the Buyer being satisfied at their sole discretion with the results of their search of the Body Corporate records - then requiring the Body Corporate records sent to you or engage a pre-purchase strata inspection report, review details of levy balances, notices etc. Kind of essential if there are alarm bells about works needing to be done. Otherwise, without such specific obligations to aid your due diligence, it's kind of tough luck contractually.

    That leads me to my second point, the problem is "conditional on finance" is not the same as just conditional on due diligence or some other special condition. You would have to prove it really means you wouldn't have got finance, which would mean you would be in the situation you are now bankrupt because you can't pay the strata? If you can actually make the credit to pay the difference, it's likely this won't help you, as you were already under contract, and although people do it, you technically can't just use finance as a get out of anything you don't like clause. It's really only for if the finance was to be denied with your reasonable endeavours to attain it.
    "you must take all 'reasonable steps' to obtain approval in accordance with the contract. If you have not done this, you may not have grounds to terminate the contract. This prevents buyers from using the finance clause to terminate for other reasons" https://fclawyers.com.au/contract-subject-to-finance/#:~:text=Please%20note%2C%20you%20must%20take,(like%20changing%20their%20mind).

    Finally, as for recourse about the misrepresentation from the agent - At the point you entered the transaction, the agent had to disclose things to you. I'm not so sure they have an ongoing obligation if you haven't required them to keep you updated after you are under contract continuously - unfortunately they don't work for you and some of their risk regarding representation is kind of over when you sign unless you contract them to do certain things under some due diligence investigations. I think they are only on the hook for misrepresentation if they misrepresent things to get you to sign the contract really, but its slightly grey, but I don't love your chances.

    If the agent deliberately lied to you as they knew the price of these works was higher earlier, and not just based on the date of the letter, you'd need to prove when they received it, when they read it etc, and you sought out any updates etc whilst seeking your finance approval (or the contract required them to send anything to you) - maybe you may have some sort of recourse (but they will probably just say they hadn't read it and didn't know). Even if you could prove they had it, unless they concede (very unlikely), it will be a long difficult road that you probably won't get too far without spending more on legal fees than it's worth on balance of risk to chase a $40K difference - especially because your recourse is already watered down as they told you there would be a cost to works, and told you the cost was approximate. So you are probably chasing 50% culpability for the difference between the estimate and actuals (i.e. $20K). You would easily spend $20K to chase that $20K through legal courses of action. So, unless you can prove some other way they ought to have known it would be more than $20K when they represented $20K to you back when the contract was signed (which they actually may not know because depending on the works it could be anyone's guess at that point), and you prove that $60K is sufficiently different to that estimate in the scheme of the total property transaction, then I don't like your chances of getting any more than ~$20K of it for a lot of effort and cost.

    Sorry it's not great news - but on the bright side, in the end you'll probably end up okay if you can make finance somehow as you hopefully you got a good buy given others may have avoided it, there is a housing crises and getting anything is good work at this point (and getting worse), and so owning property long term is almost always a good idea that appreciates! If it makes you feel better as I work a lot with people that buy things to upgrade / redevelop etc, I've seen plenty of people hit with unforeseen costs, but we all still make a living out of it!

    • MrFrugalSpend on 13/06/2023 - 00:44

      PS - You also win more with honey then vinegar, and keep the legal action to a minimum as no one wins unless you are fighting over millions.
      Accordingly, my only other thoughts are (again, not advice), is if you haven't settled yet, perhaps you can seek an extension to settlement, appeal to the seller that you can't afford this, tell them you believe the agent misrepresented it to you (in as diplomatic of a way as possible) and need to seek legal advice as you can't proceed and will be ruined, but tell them you can afford $13.3K if the 3 parties split the $40K difference 3 ways - you, seller, and agent gives up their commission to avoid complaint and legal action? (the agent likely won't agree at that but the seller may pressure them to offer at least something to them and meet you half way to avoid the hassle).

      Good luck!

    • Cynicaloflife on 14/06/2023 - 03:09

      Valuable information. Thank you!

      I found this post to be interested as a mate of mine has also experienced similar situation.

      What if the letter was dated 2 weeks prior to the contract being signed? The email that the agent forwarded clearly shows the date they received the letter.

      Surely, the agent is at fault?

      Would this go to the ACCC?

      • MrFrugalSpend on 19/06/2023 - 21:19

        It would be much more likely they have misrepresented in that case

  • CyberMurning on 13/06/2023 - 00:00
    +4

    Thats what a good agent will do…. lying…

    • AustriaBargain on 13/06/2023 - 02:27
      +1

      OP should def use the same agent when selling.

  • twadds on 13/06/2023 - 00:15
    +6

    Did you obtain a strata report before purchasing? What did it say about upcoming special levies?

    Is the letter from the strata company an actual levy notice or just a notice a notice about the intention to raise a levy in the near future?

    If it is a levy notice what does your contract state about who is responsible for special levies raised before settlement?

    • jjjaar on 13/06/2023 - 08:36

      Exactly this, strata usually clarifies what is definitely committed to, but also what is known to be coming up. You also have the previous AGM which usually outlines these.

    • tsunamisurfer on 13/06/2023 - 11:24

      It could be that the strata company has received an updated or amended quotation.

      Perth prices can move.

  • payless69 on 13/06/2023 - 06:50

    Run!

  • Drakesy on 13/06/2023 - 10:55
    +1

    So TLDR.

    You knew it was a $20k special strata levy.
    The strata levy is now $60k.

    Hmmm, this could be a tough one to prove.
    No wonder the owner wanted to bail.

  • netjock on 13/06/2023 - 11:11

    the real estate agent stated that there is going to be an extraordinary expense of say $20k to fix the building and the property has been priced to reflect that

    Got this in writing? If so you can hold back the extra $40k because obviously misrepresentation.

    Get strata to confirm the prior estimate before the $60k. If it $20k then it is change after the fact (REA confirmation) but then you might still have a fall back. You could argue circumstances have changed and cancel the contract.

  • tsunamisurfer on 13/06/2023 - 11:26
    +1

    OP do you know what the levy is for? What remediation work are they undertaking? Has that even been ratified by the owners? I am on the COO of my strata and I know there would be a revolt if the cost went from $20k to $60k.

    Is this $20k to $60k levy across every owner? or PER owner? How many lots are there? If it is per lot and $60k thats huge and I would be out.

  • bobbified on 13/06/2023 - 15:19

    I had 4 weeks to get the finance approval which happened on Friday last week.

    If your bank was to "somehow" learn about this $60K bill, that might reduce the property valuation that could cause you to not meet the lending criteria. Which means you might be able to pull out of the contract with the finance clause.

  • WreckTangle on 13/06/2023 - 16:59

    In NSW you can pay to get a company to do a strata inspection and report on any issues as part of pre purchase buyer diligence. Is this not a thing in WA?

  • skid on 13/06/2023 - 17:06

    The existing owners would not agree to a $60k expense. No one has a $60k lump sum to spare. It'd be paid in installments or split between owners or insurance or smth.

  • ihbh on 13/06/2023 - 20:33

    The letter is dated 2 weeks before, but the agent emailed me today and post finance approval

    But when did the agent receive the letter? What if the agent was on holidays?

    Unfortunately, you didn't do your due diligence. The agent is just an intermediary passing on information that you should have obtained directly yourself.

  • Countryboyperth on 14/06/2023 - 08:56

    Hi all,

    Thank you for your comments.

    Just wanted to clarify that while the finance approval was happening, the agent received the expenses information of 60K and withheld this information.

    It was released only after the financial approval was completed.

    Do I have any basis to stand against this and how do I go about it? Is it possible to get out of the contract?

    Thanks!

  • AT1013 on 14/06/2023 - 13:38

    Can you back out if your financial wasn't approved in the first place? Is that what you want to do? Then can you ask the bank to unapprove the loan?

  • Pumpkin_rrr on 14/06/2023 - 15:42
    +1

    After signing the Contract, did you carry out a Body Corp Review? It would have been mentioned in the BC eetings.
    If I am told of $20k Body Corp payment, I would have asked for proof.
    It is now $60k, do you have any paperwork to show this figure?
    Body Corp is a specialised area, Agents either know a lot, or nothing.
    Do you know when and how the Agent receive this info? Could have been sent to him by the Owner later?

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