Due Diligence Clause For Figuring Out Council Approvals
A house has 5 bedrooms but the 5th one hasn’t earned council approval yet- can you still advertise it as a 5-bedroom flat? The answer is NO. A vendor cannot do so. Plain and straight! Liz Wilcox for the blog Property Update writes why it is important for buyers to prefigure the nitty-gritty of council approvals before buying a property.
Wilcox says that it is imperative for a buyer’s agent to insert a Due Diligence Clause in the property contract. It helps in several ways. A couple of them are:
- It helps in buying some time for chalking up a negotiation plan
- It helps in seeking cost estimates required to gain requisite approvals
The case of paying from one’s own pocket
If you a buy a property without approvals, you may have to pay for inspection and building works from your own pocket when it is time to resell the property.
Wilcox also makes an absurd but realistic claim- She says that sometimes, if a property ticks all the right boxes except for council approvals, the lack of approval might turn out to be a boon.
Negotiate strongly for unapproved homes
After all, argues Wilcox, it gives a shot in the arm to the buyers during price negotiations. It is only natural that the sellers are quite willing to sell at a discount in absence of requisite approvals.
Oftentimes, miscommunication results in lack of approval
Often, lack of approval is the result of faulty communication between developers and buyers; both assuming that the course of law must have been followed by the other party.
Councils do not approve properties for a wide repertoire of reasons. A property might be unduly suffering from easements (a neighbour’s sewage line running through the front yard). It might not have sought approval before removing a load-bearing wall or it might not have passed council approval for its basement area or some such thing.
Due Diligence Clause a must
Buyers must invoke a Due Diligence clause to find out as much as they can about the approvals on a property. They should also negotiate a selling price that more than offsets any cost they may have to incur in fetching appropriate council approvals on a later day.