22 Dec Buyers (and Vendors) Beware! The Dangers Of Defective Form 1 Disclosure Statements
Whenever a vendor sells land, they are required to provide a document called a Form 1 Disclosure Statement (usually just called a “Form 1”) to the purchaser.
If the vendor has engaged a real estate agent to sell the land on their behalf, it is the agent’s responsibility to prepare the Form 1 and to make all the enquiries that are necessary to ensure the Form 1 is absolutely accurate.
What is a Form 1?
The Form 1 is supposed to contain all the prescribed information necessary to satisfy the purchaser that they are fully aware of what they are purchasing. Everything from any mortgages appearing on the title, to encumbrances, to relevant council consents and approvals, to encroachments, to rules and regulations affecting the land, and so on.
The Form 1 is served on the purchaser at or around the time of signing a contract for the purchase of land, and once served the purchaser usually has two (2) business days to decide whether or not to proceed with the contract.
If upon a close inspection of the Form 1, which we would usually recommend you do with the benefit of our legal advice, we or you find something which may affect your rights, such as a building restriction or an encroachment on the boundary, that can well influence your decision not to proceed with the contract.
This is called your right to “cool off” on the contract. In fact, you do not have to give any reason if you exercise your right to “cool off” if you exercise that right within the two (2) business day “cooling off” period.
Defects in the Form 1
However, what if you are outside the two (2) day “cooling off” period, and you or we notice a defect within the Form 1? It could be something major as the omission or misdescription of a zoning policy or something as minor as the wrong box ticked or not ticket at all.
In that event, the purchaser can require the vendor to serve the purchaser with a fresh Form 1 with the defect corrected, in which case the purchaser has another two (2) clear business days to “cool off” on the contract.
You can imagine the embarrassment to the vendor’s agent not to say anything of the risk involved if the Form 1 has to be redone and served on the purchaser, who then has another two (2) clear business days to “cool off”. This can occur at any time before settlement.
What if settlement has taken place?
There are remedies available to a purchaser if they have already settled pursuant to the contract, perhaps have had a case of “buyer’s remorse” and learnt that there was a defect in the Form 1.
In that event, the purchaser is entitled to approach the vendor and seek the vendor’s agreement, and failing agreement to seek a Court Order, “rescinding” the contract, in other words to set the contract aside and be refunded the purchase price.
If the purchaser does not wish to have the contract set aside, depending on the nature of the defect in the Form 1, the purchaser may wish to claim damages against the vendor to compensate them for the loss that they may have incurred as a result of the vendor’s failure to serve them with an accurate Form 1.
For example, a defect omitting reference to certain restoration work required to comply with a heritage listing may not have affected the purchaser’s decision to settle on the contract, but may well entitle the purchaser to reimbursement for the necessary building works.
Buyer (and vendor) beware!
A contract must be read and considered together with the Form 1, which is arguably as important if not more important a legal document as the contract.
Contracts can be open to interpretation and the terms may well be expressly varied by written agreement between the vendor and purchaser or implicitly by their conduct. It is essential that you obtain legal advice with respect to the terms of the contract before you sign same.
The Form 1 Disclosure Statement, on the other hand, is a statutory document designed to protect the purchaser and must be read thoroughly, and preferable with the benefit of legal advice, before you sign the contract or after you have signed the contract especially within the two (2) business days you can decide to “cool off”.
You will definitely need to get legal advice if you learn of a defect within the Form 1 at any time before settlement to assist you with the decision whether or not to “cool off” or proceed with the contract.
If you are a disgruntled purchaser having settled pursuant to the terms of the contract, our specialist legal assistance may well be used to “detect a defect” within the Form 1 which may well entitle you to rescind the contract or seek some other remedy such as damages from the vendor.
If you are a purchaser and consider that your rights may have been affected by a defective Form 1, or if you have any query at all with respect to a conveyancing Adelaide or property law matter, please do not hesitate to contact us on 8276 7955 or email your enquiry at email@example.com. Remember that in the matter of contracts, time is always of the essence, so act now.