What is an encumbrance.

An encumbrance is an interest held over land by a person other than the owner of the Land. In Queensland you can have both registered and unregistered encumbrances.

When buying or selling a property it is important to check wither the property is encumbered and whether those encumbrances will pass when the sale goes through. If they pass to the new owner they should be inserted in the contract. Encumbrances that don’t pass to the new owner are typically the Sellers mortgage and caveats lodged by other persons who claim an interest over the property or a debt from the current owner.

This then leads to the encumbrances that do pass to the Buyer at settlement and come in two forms, registered encumbrances, and statutory encumbrances.

Registered encumbrances are things such as rights and interests reserved to the Crown, easements, covenants but may include others. A Statutory encumbrance typically doesn’t appear on the Title, however they must also be disclosed to any buyer as they may place restrictions on the use of the property, obligations on the property owner or convey further rights on the property owner under a Statute.

Typically, all properties will have the rights and interests reserved to the Crown registered on title relating to resource wealth that may lie within the property. There are clauses in the contract that state that the property is sold subject to these reservations so it doesn’t need further disclosure. If you were looking to buy a property and mine it, you would need to ensure that further steps were taken to secure the mining rights. We would recommend this is done by a Solicitor.

As for any other encumbrance, whether it is a Statutory encumbrance or a registered encumbrance, these MUST be identified in the contract. It is not however, sufficient disclosure to merely attach a title search and insert a phrase such as “see Title Search” or similar phrases.

A failure to disclose encumbrances will give the buyer different rights depending on the full nature of the encumbrance. These rights may be limited to financial compensation but do include rights of termination in certain circumstances. Given the risks, it is important the title search is reviewed, and any Seller asked if there are any encumbrances to be disclosed. Agents should also consider obtaining a property inspection prior to preparing a contract so that all encumbrances can be identified.

If you need any further advice on these matters, please don’t hesitate to contact the Team at Conveyancing Connection.