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If you are selling your property, it is very likely that your sale and purchase agreement will contain warranties which you need to be aware of. Often vendor warranties are overlooked, and sometimes can come back to haunt you many years later.

In the recent decision of Miles v Gadd, the Court of Appeal considered the meaning of the vendor warranty contained in clause 8.2(6)(a) of the agreement relating to a unit titled property.

In this case, Gadd sold their unit to Miles. Eight months after settlement, significant weathertightness issues were identified by the body corporate and following investigations, the only viable option was to fully re-clad the entire complex, including roofs and balconies. Estimated repair costs were rising from $10 million to $20 million. As a result of these issues and the significant costs estimated to repair the defects, Miles decided to sell the unit for a significant loss of $235,000. Accordingly, Miles brought proceedings against Gadd for breaching the vendor warranty contained in the agreement by not disclosing the defects.

The warranty provided the following:

8.2         If the property is a unit title, the vendor warrants and undertakes as follows:   

(6) The vendor has no knowledge or notice of any fact which might give rise to or indicate the possibility of:  (a)  the owner or the purchaser incurring any other liability under any provision of [the Unit Titles Act 2010] or [the Unit Titles Act 1972]”

The High Court’s interpretation of the warranty was that it was limited to actual knowledge or notice of facts giving rise to the possibility of liability. They found that Gadd regarded the issues identified were of usual maintenance and repair and were to be expected with a complex of such nature. Accordingly, the High Court found that Gadd was not liable for breaching the vendor warranty.

Miles appealed the High Court’s decision to the Court of Appeal. The Court of Appeal considered what the words “any other liability” in the warranty meant, and whether such liability could be extended to liability for unidentified defects, and whether Gadd had knowledge or notice which could indicate the potential for liability to arise.

The Court of Appeal departed from the High Court’s interpretation, and found that it relates to the possibility of other liability being incurred. They further found that the scope of the warranty was not limited to prospective liabilities relating solely to a vendor’s unit and could extend to prospective liability relating to common areas.

Gadd acknowledged that they were aware of parts of the building required repairs, however believed that these would be addressed through ordinary maintenance. There were also statements in body corporate minutes stating that it was not a leaky building. Accordingly, the Court held that Gadd had acted reasonably and was not aware of any widespread issues beyond isolated repairs and the appeal was dismissed.

Although this decision relates specifically to the vendor warranty for unit titled properties, there are also many other vendor warranties contained in sale and purchase agreements relating to ordinary freehold and cross lease properties.

Often sale and purchase agreements are simply signed by Vendors without any understanding of the nature of the warranties involved, and some can find themselves being caught by the warranties many years later. A purchaser has 6 years from the contract to bring any claim against Vendors for breaching these warranties.

For this reason, it is crucial that if you are looking at selling your property, you seek legal advice from the outset so that you are completely informed about what you are warranting in relating to the property you are selling.