Part 3 Legal Loopholes
4. Easements
When you buy a property most standard contracts provide that you acquire the property free of encumbrances unless details of these encumbrances are noted on the contract of sale.
The main type of encumbrance that can affect the property is an easement. An easement is the right to use a property in a particular way without taking anything from it, for example the right to passover the property where you have purchased a battle-axed property (i.e. the property has no road frontage itself and access to the property is via a right of way along a road in front of the property that you are purchasing). Other examples of easements are rights of way granted to the electricity authorities, Telstra or the local council for drainage purposes.
If you are looking for a loophole in the contract of sale you should immediately carry out a title search to determine whether the property is affected by any easements. Easements are what lawyers call “a classic defect in title” to a property. Even a humble drainage easement that may be situated along the boundary of the property may constitute an easement that gives you rights to terminate the contract.
Where an easement materially affects the use of a property a buyer has the right to terminate the contract of sale unless details of the easement are noted on the contract of sale.
The big thing to remember about easements and why they are so important is that it is unlawful to build over an easement.
A group of client companies purchased a large parcel of vacant land to construct a storage shed development. Diagonally through the land ran a drainage easement for the benefit of a neighboring property. It was the classic humble drainage easement. When they searched the title to the property and checked the terms of the easement that was registered on the title, the results revealed that the path of the easement was diagonally through the middle of the block and was much wider than originally represented by the selling agent. The development could still have easily proceeded and been built around the path of the easements, however the configuration of the development that would have been built around the path of the easement would have drastically reduced the income yield from the storage sheds (less sheds could be constructed on the site if the path of the easement remained as is).
If you were the buyer of this property you may have the right to terminate the contract because the existence of this easement was not noted on the contract of sale itself.
Once an easement is noted on the contract of sale, this has the legal effect of making the buyer’s purchase of the easement. If you had been this buyer then the search of the easement would have sent you scampering off to your lawer’s office to check the terms of the easement and your ability to pull out of the contract of sale.
In that real-life situation, however, the buyers successfully negotiated a re-routing of the path of the easement with the neighbor who had the benefit of the easement so everyone lived happily ever after.
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