Knowledge: Townhouse

From four or five on a tight block (neat and cosy) to two sharing a big block (can be larger than an free-standing house!), the townhouse has long been a favourite property type with lots of advantages. Whether you’re still looking or have already found it, what you need to know about becoming an owner of a townhouse is listed below.

General

It’s very likely that the building you’re buying into will have an owners corporation, and so once you’ve completed settlement, you’ll automatically become a member of it.

The owners corporation will usually have appointed a manager of the building’s common property, which is amenities for the enjoyment and benefit of all residents. These can include:

  • driveways
  • car parks
  • lifts
  • gardens
  • gyms
  • swimming pools
  • rooftop communal areas

In small developments of two, three or four townhouses, a shared driveway might be the only common property. So, there may not be an external owners corporation manager – the owners themselves could manage the owners corporation.

Rules

The owners corporation will have rules and a copy may be attached to the Vendor’s Statement. Because you will be required to follow these rules (and can be forced to follow them by a tribunal order, if you don’t!), you should read them carefully before signing a contract. Who needs rules that would make living somewhere difficult?

Fees

Townhouse owners will also have to pay owners corporation fees, which is to be expected, because you want your communal areas to be maintained nicely. You should ask the selling agent how much the fees will be, how they’ve been calculated and how they will be managed. Bear in mind that as buildings age, maintenance fees are likely to increase.

In small developments, like in the example above where the owners manage just the driveway as common property, the only fees are likely to be insurances for the driveways and the buildings.

Special Levies

Special fees, or levies as they’re also known, are raised for specific additional expenses, such as urgent repairs or replacing non-compliant cladding. If any special levies exist when you’re buying your townhouse, they’ll be recorded in an owners corporation certificate, which is attached to the Vendor’s Statement.

But, if a special levy is only being considered (for example, if quotes for costs are being obtained, the final amount will not have been decided), then it won’t appear in the owners corporation certificate. You should always ask for and read the minutes of the most recent owners corporation meeting, as any potential future special levies would usually be recorded there. This will give you the chance to budget for extra fees or if you think the fees might be too much for you handle, you might reconsider buying the property.

If you upload your contract into our Advice Centre before you sign, then as part of our advice to you we will explain the owners’ corporation fees apply to the property you want to buy.

Pets

If you have pets, you should ask the selling agent for a copy of the proposed owners corporation rules. These will tell you whether or not you’ll be allowed to keep pets in the building. Proposed changes to the law in Victoria will make it a lot harder for rules to prevent people keeping pets from 2019. We will keep you updated on the progress of these changes.

The vendor must deliver the property to the purchaser at settlement in the same condition that it was in on the day of sale, except for fair wear and tear.

You might be familiar with the concept of fair wear and tear if you’ve been renting. In this context, it means that when you go to the property for the final inspection before settlement, you should assess any goods that form part of the sale to check whether they’re working or not.

Goods include lights, stove and oven, dishwasher, air-conditioning, curtains and so on.

If they’re not working perfectly, but that’s due to fair wear and tear (not damage or destruction) then you have to go ahead with settlement and take the goods as they are. We’re pretty sure you’ll be able to take care of a leaky tap or loose door handle!

If it’s essential to you that certain goods are working when you settle and take possession of the property, then you should specify your requirement as a special condition in the contract. For example, if settlement is taking place in the middle of winter, you could require that the heating is in working order at the time.

Alert! This is a very important aspect of any purchase. The Vendor’s Statement must set out any building approvals or permits that were issued for renovations of or other works at the property during the past seven years. This is a specific question that the vendor is required to answer in the Vendor’s Statement.

However, the vendor may correctly answer "no" (or words to that effect) if they failed to apply for a building approval or permit but still undertook building renovations or works. It might not seem fair, but them’s the breaks.

If there has been an illegal or unauthorised renovation of your house (meaning that the required permits weren’t obtained), and the local council finds out about it, then the council can issue the owner of the house with a notice to fix, or even to demolish, the illegal work or renovation.

Illegal or unauthorised building renovations will not allow a purchaser to terminate a contract of sale, so, you need to be aware of the following.

Who is liable if the council serves a notice?

Generally, it will be the purchaser who is responsible for compliance with any notices or orders that the council (or other authority) issues for the property after the contract of sale is signed and before settlement. Complying with a notice (such as a building order) can be very expensive and nine times out of ten it is not a reason for you to refuse to complete settlement.

If you are aware of or suspect any renovations or other building works to the house, and you think that a permit may not have been obtained, we recommend you talk to us through the before you sign your contract.

Caveat

A caveat is a precautionary measure that puts a notice on the title for everybody to see that you have entered into a contract to buy that property. When a vendor and a purchaser have exchanged a signed contract, the purchaser can then lodge a caveat against the vendor’s title, which would alert any other parties that could come along that the property has been sold and that a prior existing interest exists.

Circumstances in which you would rely on a caveat are rare, but they still happen. In essence, a caveat operates as a form of insurance against situations that could involve you in court action, which could be costly.

For example, say the vendor wants to borrow some more money from its bank using an existing or new mortgage after the property is sold to you. If this happens after you’ve signed the contract and lodged a caveat, the bank will be aware that the property has been sold, and that it’s been sold to you in particular.

This means that the vendor’s bank should ask for details of the sale and the sale price. Then, the bank should make sure that any further amount it lends to the vendor under their mortgage isn’t going to be higher than what is being paid by you to complete your settlement. Another key benefit of the caveat is that there can’t be any dealings on the certificate of title for that property unless you allow it.

Unfortunately, like all insurance, you have to pay for lodging a caveat. If you would like more information about a caveat specific to your own situation, head to the Advice Centre, upload your contract or, if you’ve already signed your contract, then upload it to the Transfer Centre, and we’ll get in touch to discuss it.

Insurance

We all know that it’s sensible to insure our property and you probably have it on your to-do list (which can be pretty long when you’re buying, packing and moving).

The key thing to consider is when to take out insurance. You actually have an insurable interest in the property from the day that you sign the contract – way before settlement and taking possession. Start looking into insurance policies and quotes as soon as you know you’re going to make an offer, so that you’re prepared from day one.

Although you can expect a contract of sale to say that the vendor carries the risk of loss or damage to the property until settlement, it’s not uncommon to find special conditions in contracts that change this position. The effect is that the risk of damage to the property passes to the purchaser from the day of sale. This is one reason why we recommend taking out insurance for the property from the day you sign the contract.

Another reason is that your bank (or other lender) will usually require that you provide a certificate of insurance for the property, as part of your finance approval conditions.

Adjustments

With the ownership of property comes responsibility for certain costs and expenses after the actual purchase.

The vendor pays for all property outgoings until the day of settlement. These can include council and water rates, possibly land tax and owners corporation fees. You will pay your portion of these outgoings from the settlement date onward.

For example, council rates are payable for the period of 1 July to 30 June each year. If your settlement takes place right in the middle on January 1st, then the statement of adjustments will show that the vendor pays for half the year and you pay for the other half.

Another example is if the Vendor has a mortgage registered on the certificate of title. Their mortgage must be discharged when you are registered on the certificate of title, and there is a fee payable to the land titles office to do so. The vendor pays this fee and it will be noted on the statement of adjustments.

So, who’s responsible for working out adjustments? We are - it’s part of the transfer (a.k.a. conveyancing) process. If you’ve already signed up with Clarity, you might be familiar with our Transfer Portal. This is where we upload your Statement of Adjustments for you to view before settlement.

If you haven’t signed up yet, it’s free to do so, and you can save and share the relevant information that you find in our Knowledge Centre and in our Articles.