This article contains general information only and is not legal advice.
Buying a home from a parent, sibling, child or other relative can seem simpler than buying from a stranger. The parties may trust each other, the price may be agreed informally, and everyone may feel there is no need for the usual searches and paperwork. That approach can create significant problems.
A family property transaction should generally be approached with the same care as an arm’s-length purchase. Independent legal advice, property searches, appropriate contract documentation and proper
settlement procedures help protect both the buyer and the seller—and can be particularly important where the purchase is financed by a mortgage.
Mortgage and title requirements
If you are borrowing money to purchase the property, your lender will need to be satisfied that the property provides acceptable security for the loan. The fact that the seller is a relative does not eliminate the lender’s requirements. In fact, a related-party transaction may require additional information, particularly where the property is being sold below market value or the transaction involves a gift or financial assistance.
A Queensland title search identifies the registered owner and registered interests affecting the property, including mortgages, easements, covenants, leases and caveats. A title does not necessarily need to be completely free of every registered interest. For example, an ordinary property may legitimately be subject to an easement or covenant. The important issue is that the buyer, conveyancer and lender understand the interests affecting the property and ensure that any interests that must be released or dealt with at settlement are properly addressed.
Rates, charges and land tax
Another important reason to conduct proper searches is to identify amounts owing against the property. Under Queensland law, overdue local-government rates and charges can constitute a charge over rateable land. Councils therefore have mechanisms for recovering overdue amounts associated with the land. In practice, the conveyancing process includes obtaining relevant rates and settlement information so that amounts owing can be identified and dealt with appropriately.
Land tax deserves particular attention. Queensland Revenue Office states that unpaid land tax is a first charge over land and can continue as a charge even after the property is transferred. A purchaser who obtains a land-tax clearance certificate is protected from later recovery of the seller’s land-tax liability identified by the certificate. For that reason, a land-tax clearance certificate should not be skipped merely because the seller is a family member.
Building approvals and unapproved work
Family homes often contain additions or alterations that were carried out many years ago. Examples might include:
- a converted garage;
- a patio or deck;
- a shed;
- a secondary dwelling;
- an extension;
- retaining walls;
- plumbing alterations; or
- changes to the use of part of the property.
Not every piece of work requires the same type of approval. Some minor building work may be accepted development, while other work requires building approval, planning approval or both. This is why buyers should investigate the property’s approval history rather than simply relying on the seller’s understanding that “everything is approved.”
Council searches can identify building approvals, inspection records, certificates and outstanding notices, depending on the council and the type of search conducted. Development searches can also identify past and current development applications and approval conditions.
However, a search should not be treated as a guarantee that every physical structure on the property complies with every legal requirement. A building search primarily provides access to government records. A physical inspection and, where appropriate, independent building or structural advice can provide another layer of protection. If unapproved or non-compliant work is discovered after purchase, the consequences can include investigation, rectification, approval or enforcement issues. The precise consequences depend on the nature of the work and the applicable planning and building laws.
Protecting the family relationship
Independent searches are not an indication that you distrust the seller. They can actually protect the relationship. Suppose a serious issue is discovered twelve months after settlement. If the buyer relied entirely on a relative’s understanding of the property, the discovery can quickly become a personal dispute. By contrast, using an independent conveyancer, obtaining appropriate searches and arranging an independent building and pest inspection establishes a clear process for both parties. The transaction becomes less about whether one family member “trusted” another and more about what the official records and professional reports say.
Transfer duty and discounted family sales
Queensland transfer duty is another important consideration. For most transfers of Queensland land, the dutiable value is generally the greater of: the consideration for the transaction; or the property’s unencumbered value. This means a below-market family sale can create a transfer-duty issue.
For example, suppose a property has an unencumbered market value of $700,000 but a parent sells it to an adult child for $400,000. If the property’s unencumbered value is properly established at $700,000, transfer duty will generally be assessed using the higher $700,000 value rather than simply the $400,000 purchase price.
Queensland Revenue Office guidance also states that independent evidence of value is required for transactions involving gifts or related or associated parties. Depending on the circumstances, this may involve obtaining an independent valuation. The parties should therefore obtain appropriate advice before signing the contract rather than assuming that a discounted family price will automatically reduce transfer duty.
The safest approach
A family transaction should still have:
- a properly prepared contract;
- independent legal or conveyancing advice for the buyer;
- appropriate title searches;
- rates and charges searches;
- a land-tax clearance certificate where appropriate;
- relevant council building and planning searches;
- building and pest inspections where appropriate;
- an independent valuation or other acceptable evidence of value where required;
- lender approval and compliance with the lender’s requirements; and
- proper settlement through the normal conveyancing process.
The exact searches required will depend on the property, its location, the contract, the type of transaction and whether finance is involved.
The key principle is simple: Family trust should not replace proper property due diligence. Treating the transaction professionally protects the buyer’s investment, protects the seller from future disputes, and can ultimately help preserve the family relationship.
More Questions?
Our friendly, experienced conveyancing solicitors are more than happy to chat about any aspect of conveyancing in Queensland. If you have any questions, contact us today.
