Unit Titles: Pre-settlement disclosure - leverage for getting paid

The disclosure regime under the Unit Titles Act 2010 (“UTA”) provides bodies corporate with a new tool for getting paid outstanding unit owner debts.

Under section 147 of the UTA, a unit seller must provide their buyer with a “pre-settlement disclosure statement” at least 5 working days prior to settlement.  This obligation cannot be contracted out of and carries potentially serious consequences if not complied with: failure to provide the statement within the required timeframe gives the buyer the right to either postpone the settlement date or cancel the contract.

The pre-settlement disclosure statement must contain, or be accompanied by, a certificate by the body corporate certifying that the information in the statement is correct.  A body corporate may, however, withhold that certificate if “any debt that is due to the body corporate by the unit owner is unpaid” (section 147(4)).    The most obvious debt would be outstanding body corporate levies pertaining to the unit being sold.  However, the UTA does not limit it to that.  There would appear to be no reason, therefore, why a body corporate could not demand payment of debt unrelated to the unit being sold, such as a separate judgement debt (for example, where a developer who has been successfully sued by the body corporate is selling its unit and is liable to the body corporate for a judgement debt) or levies which might be outstanding on other units within the development which are owned by the selling unit owner.

Levies themselves are usually cleared on settlement in the ordinary course of conveyancing of a unit title property because the unit seller contracts with the purchaser, under the agreement for sale and purchase, to do so.  However, given that the body corporate may withhold their pre-settlement certification if any debt due by the unit owner is unpaid, technically they could require payment prior to the issue of the pre-settlement certification (i.e. before settlement).  At least they could require an undertaking from the unit owner’s solicitor that the debt will be paid from the sale proceeds before issuing the certification.
Bodies corporate will no doubt take a pragmatic approach to using the pre-settlement disclosure certification to obtain payment of outstanding debt: if there will be insufficient sale proceeds (once mortgage debt and outstanding levies are paid) to pay other debt due to it by the owner (such as judgement debt) then it may be more beneficial for the body corporate not to jeopardise the sale by refusing to supply the pre-settlement certificate (and cause the contract to be cancelled) and, instead, ensure the sale is completed and at least outstanding levies are recovered.  However, this could be useful leverage for payment, particularly where other options are limited.