During the property sales process, potential buyers are regularly provided with property search results previously obtained by the seller or other third party. Often these search results form part of the general disclosure material provided by the seller and are contained in sales "data rooms" or due diligence packs. It is often convenient for the buyer, especially when time is of the essence, to rely on these search results prior to committing to an unconditional contract.

Partner Mark Lyons explains what we can learn from a recent case about the risks of relying on third party search results.

Risks highlighted by recent case

A recent Queensland Court of Appeal decision is an excellent example of the care needed when relying on search results provided by a seller or other third party.

The case involved a planning certificate issued by a local authority which contained some inconsistencies, including incorrect planning information. The planning certificate in question was originally obtained by the seller when it acquired the property. When the seller was marketing the property for sale, the seller passed the certificate on to the selling agent who in turn provided a copy of it to the buyer.

The error contained in the planning certificate, and the buyer's reliance on it, ultimately led to a material loss for the buyer when the error was eventually discovered. The buyer attempted to sue the local authority relying on the statutory right of compensation under the Queensland Planning Legislation. This entitles a person to claim compensation from a local authority where they suffer financial loss because of an error or omission in a planning certificate.

The court said the buyer did not have a right of compensation against the local authority because the buyer did not fit within the class of person entitled to rely on the certificate. While the class of person was broader than just the applicant for the certificate, it did not in this case include the onpurchaser of the property.

Some insights

The facts in this case are quite specific, and each State's legislation differs in relation to rights of compensation for errors in statutory search results. However, the case clearly underlines the importance of the buyer making a properly informed decision to either:

• commit to the time and expense involved in obtaining the buyer's own fresh set of statutory property searches before unconditionally purchasing a property, or
• understand and accept the risks associated with relying on property searches obtained by a third party.

Please contact one of our Real Estate lawyers who can explain how this issue could impact on your property acquisition.