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Buyer beware: Risks & protections for illegal building works

Here’s a scenario that can cause headaches for homeowners. You’re planning some renovations or an extension for your home. You submit the plans to your local Council, but then receive a Building Notice that some of your property was built illegally by the previous owners without Council approval. What happens next?

This type of occurrence is all too common – in fact, it’s estimated illegal building works could affect around a quarter of all Australian homes. So how can you protect yourself against any freewheeling ‘DIY’ approaches that previous owners might have had – and the associated illegal structure risks?

Let’s first explore the issue itself, and then ways to protect yourself via due diligence and title insurance.

Firstly, what is an illegal structure?

An illegal structure, also known as illegal building works, is that which has been built or added without approval from your local planning authority. Illegal works could include sheds, carports, verandas, decks and even extensions and rooms of a home.

There’s a very good reason that building approval and permits exist; they help to ensure a high standard, and without them, illegal works could lead to structural, electrical, plumbing, drainage or other illegal structure risks. 

Surely a new owner isn’t responsible for the actions of a previous owner?

Depending on your terms of sale, you very well could be. If you receive an Illegal Building Notice or Order you may be responsible for either getting the works up to code or for demolishing the illegal works. This can get inconvenient and expensive very quickly, and sometimes even up to six figures for complex works.

How can you take measures to protect yourself against the risks of illegal building works? 

1. First, by doing due diligence prior to and during settlement. Inspect the council records (or instruct your conveyancer to request these records), to ensure additions or renovations have been approved in the past. Consider engaging an independent building inspector who may be able to flag attention to any inferior-looking work.

2. Second, consider taking out title insurance. This type of insurance policy can be purchased before, during or after you purchase your property. Crucially, title insurance could protect you in the case of illegal works that you weren’t aware of or informed about at the time of settlement.

How much protection does title insurance provide? 

Here are two real-life examples where a title insurance premium paid for itself many times over.

First, a First Title client who had purchased a home in Victoria received a Building Notice from Council requiring an unapproved balcony roof, spa, deck, veranda, access ramp and stairs be demolished or made compliant for retrospective approval.

The client made a claim with First Title, who reviewed the purchase file for the property confirming there had been no disclosure of any unapproved structure. First Title reviewed quotes for the required design and building works, and accepted the claim pursuant to its ‘illegal building work’ coverage. In the end, First Title covered $83,000 worth of costs for the client including:
•    Building surveyor report
•    Plan drawing
•    Repair, demolition and rebuild, and
•    Additional spa fencing.

Another client had purchased a home in Victoria. One and a half years after settlement, serious water leakage occurred at their property. Upon investigation, the council issued a building notice, stating the veranda on the deck had been illegally enclosed and converted to an indoor living room. The client made a claim through their title insurance policy with First Title.

First Title reviewed the purchase file for the property and determined there had been no prior disclosure of the illegal building work. First Title engaged licensed professionals for quotes and reports for the required rectification work. First Title accepted the claim pursuant to its ‘illegal building work’ coverage, covering costs to the tune of $101,000 including:
•    Professional reports
•    Reverting the living room back to the verandah to satisfy the Council Building Notice
•    Compensation to the client for the loss in value of the living room.

How can you get started with title insurance?

It takes just one payment to take out title insurance cover for a range of property ownership risks. Get a quick quote for your property type, or request cover today with just a few documents in hand.