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Jul 22, 2021

Prudent Searches

How do I know if the seller has “good title” to what I am buying?

How far into the history of a property do I need to look to ensure I know all of the restrictions that apply?

In Deguisa v Lynn [2020] HCA 39, the High Court unanimously held that the current certificate of title is deemed to record all of the interests and restrictions that apply to a piece of land.

The High Court case concerns a piece of land in South Australia. In the mid-1960s, the land was sold as part of a common building scheme – an early form of unit titles scheme. All lots in that development were sold subject to a restrictive covenant limiting the nature and extent of construction which was permitted on any individual lot for the benefit of all other lots.

The above intention for a restrictive covenant was not properly recorded on the title. The buyers of the land did not know they owed obligations to other lot owners, only that they owed an obligation to the original developer of the land. They proceeded to obtain planning approvals to subdivide their lot and build two townhouses. The neighbours mounted proceedings.

The buyers failed at the trial and in the Court of Appeal. The lower courts held that a prospective purchaser is required to make such searches of the Register as ought reasonably be made by a prudent conveyancer having regard to both what appears on the vendor’s certificate of title and what comes to his or her knowledge during the course of such reasonable searches – an encumbrance recorded on title in favour of the developer raised the possible existence of a common building scheme. A search of the historical title would reveal a subdivision of land in the past, and searches for certificate of titles of the neighbours would reveal the likelihood of mutually enforceable covenants.

The High Court overturned the above. Unanimously, the High Court held that a purchaser of land is not bound to make searches in relation to cancelled certificates of title or the certificates of title of the neighbouring blocks. Since the present certificate of title of the land did not disclose any registered instrument showing the obligations owed to neighbours, the current owners of the land cannot be said to have notice of those covenants.

The High Court ruling has knock-on effect and implication for unregistered documents. In Ippin Textiles Pty Ltd v Winau Aust Pty Ltd [2021] NSWCA 9, Westpac sought to enforce a mortgage which had been fraudulently entered into.  Some mortgage terms and conditions were not included in the registered mortgage, but were said to be incorporated by reference to other, unregistered documents held by Westpac.

The NSW Court of Appeal held that those unregistered documents did not attain indefeasibility under the Torrens title system as they were not part of the Register Book, albeit with some hesitations.

While the High Court judgment appears to have eliminated the need to look outside of the Certificate of Title of the land and the registered interests thereon, there remains, in some circumstances, the need to do further due diligence beyond examining the Register Book.

In Sidoti v Hardy [2021] NSWCA 105, an innocent purchaser who bought a residential property in Redfern has lost its “dunny lane” to their neighbour at the back of the property by old law adverse possession. The adverse possession began before the land was converted into Torrens title in 2005, and the innocent purchaser who bought the land in 2018 relied on the Certificate of Title, which of course did not record the interests held by the adverse possessor.

The case turned on the fact that the Title was contained in a “limited folio” to which the indefeasibility of title does not apply to wrong description of boundaries to land.

The NSW Court of Appeal by 2 to 1 majority, held that the innocent purchaser lost the “dunny lane” by adverse possession to their neighbour. This area of law remains unsettled with the two justices in majority reaches the same conclusion with very different (and contradictory) reasonings in their respective judgments.

There is much more to conveyancing than meets the eyes, and it pays to have property lawyers on your side who knows the intricacy of the law.

At Trinity Law, we strive to deliver excellent services with up-to-date legal knowledge. If you require a property lawyer who can put your mind at ease, our excellent team stands ready to help.

The information in this document represents general information, and should not be relied for your specific circumstances. If you require legal advice and assistance on the matters contained or associated in this document you should contact Trinity Law. Subject to the limits of the law, Trinity Law disclaims any liability on persons relying on this document.

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