The Evolving Role of Due Diligence in Property Law: A Conversation with Mieke Elzer

For Mieke Elzer, the connection between law and environmental advocacy has been a lifelong journey. From witnessing her family’s efforts to protect old-growth forests in her childhood to her current role as an Associate Lawyer at Attwood Marshall Lawyers, Mieke’s passion for the environment continues to shape her legal career. With a focus on property and commercial law, Mieke integrates her understanding of climate risks into her practice, helping clients make informed decisions when navigating the complex world of property transactions. In this interview, Mieke shares her insights on empowering clients, the challenges of due diligence, and the evolving role of legal practitioners in addressing environmental concerns.

Tell us a bit about yourself, your background, and your role at Attwood Marshall Lawyers?

My curiosity with law started when I was 9 years old. At the time my family were actively involved with protesting the proposed logging of old growth forest in Chaelundi National Park. I observed my dad and grandma use “lock-on” devices as a means of peaceful protest, halting logging operations long enough for the legal team to build their case in court. Listening to my family talk about the ongoing litigation and seeing the success these lawyers had in saving this important ecosystem captured my childhood imagination and left me with an indelible passion for our environment.

Later in life I completed an honours thesis looking into the emergence of Earth Jurisprudence, as an alternative to the Development Paradigm that underpins our current Environmental Law Frameworks. Whilst my long-term goal is to return to academia and further this research, my current focus as an associate lawyer with Attwood Marshall Lawyers, is property and commercial law. In many ways property and commercial law couldn’t be more opposed to earth law. It is in these conflicting spaces however that I find the most interesting ideas often emerge. Addressing climate risk for purchasers as part of the due diligence process is one way that I am able to focus my thinking on the interaction between human development and our environment.

In your experience, what are the most effective strategies for empowering both law firms and clients with the necessary information to make informed property decisions?

Firstly, I would say it is important purchasers engage an experienced property lawyer or conveyancer. It is imperative that legal representatives have a comprehensive knowledge of property contracts and local planning law in order to identify known defects and climate risks for their clients. Ideally legal representatives will also have a sound knowledge of the local area in which their client is buying and will know whether the property is likely to have been effected by recent climate events. In any case, legal representatives should have a range of tools at their disposal to help identify potential risks for the property. In my practice, I utilise InfoTrack’s property search tool to identify potential property risks. Once risks are identified, relevant searches are ordered, and further enquiries are made using local council mapping tools and by submitting enquiries to the Vendor. Where appropriate, we also encourage purchasers to engage in conversations with residents/neighbours to find out more about how the property has fared in recent climate events.

Another strategy I recommend for prospective purchasers is to engage a buyer’s agent who is familiar with the area in which they are buying. Unlike the vendor’s sales agent, a buyer’s agent works for the buyer and can help gather critical and objective information.

Finally, having gathered all the available information it is time to assess how the identified risks are likely to impact the buyer. For example, where a flood risk is identified, we encourage the client to phone their insurer and find out if it is possible to insure the property against flood, and if so, is the annual premium affordable? It might also be appropriate to discuss with a client whether they can afford the costs of employing preventative measures to mitigate climate risk at the property, and whether they have sufficient social support networks in place should they have to evacuate the property in a climate event. If the property is uninsurable due to recent climate events in that area, we ask whether the client will be in a position to afford the potential remediation works if the property is impacted again.

What are the most common challenges practitioners face during the due diligence process, especially in the context of environmental risks?

One challenge practitioners face during the due diligence process is that commonly contracts will not annex a building information certificate and recent survey plan. This makes it difficult to ascertain whether the property being purchased has title defects such as unapproved building works and boundary encroachments. Further, the extensive timeframes and cost associated with obtaining these searches often mean clients opt to proceed without this information. One tool purchasers might wish to consider in this situation is title insurance. Title insurance may provide protection against a range of title defects where the defect was undisclosed and unknown to the purchaser at the time they purchased the property. It is imperative that purchasers review the title insurance policy noting covered and excluded risks before deciding if the policy is right for them. Title insurance does not however extend to environmental risks.

Determining the extent to which environmental risks might impact or have already impacted a property is another challenge practitioners face during the due diligence process. When it comes to assessing the severity of an environmental risk, it’s important to factor in the way in which that particular environmental risk might change over time. Is it enough to rely on the notations in the Local Council Planning Certificate, which provide a snapshot at best?

The importance of not proceeding to an unconditional contract until any relevant finance applications are unconditionally approved is commonly understood however, it is important to understand this in the context of environmental risk to the property. I have had a few instances in practice where a client’s finance application, which was pre-approved at exchange, was eventually knocked back on account of the property being deemed an unsuitable security due to it being located in an area that was previously impacted by flood or bushfire.

When it comes to assessing environmental risks that have already caused structural damage it is essential purchasers obtain pre-purchase pest and building reports from a reputable and impartial third-party professional. We’ve all heard horror stories of someone buying a property only to find out the property contained major structural damage from a past climate event. It can be difficult to observe this type of damage when the property has been renovated and it is important to be aware there are limitations to what vendors and agents are required to disclose, for example in NSW the Property and Stock Agents Regulation 2022 prescribes that agents must disclose when a property has been subject to flood or bushfire, however this obligation is limited to where the climate event occurred within the last 5 years.

How do you ensure that the information you rely on for property due diligence is both current and reliable? Can you share an example where up-to-date data significantly influenced the outcome of a transaction?

The most important thing here is to not rely on one source of information. I can recall many instances where the accuracy of the information contained in the local council planning certificate is in doubt. It’s always good to cross reference this information with supplementary searches and information gathered from local sources. One supplementary search is Groundsure’s ClimateIndex™ Report, which has the added advantage of ascertaining how a climate risk effecting the property is likely to change over the next 30 years. This information can be critical for investors as well as people who are looking to purchase a principal place of residence. I had a client recently pull out of a purchase after they learnt that while the current flood risk at the property was moderate, due to its proximity to a nearby river, the risk was expected to increase to “very high” over the next 30 years. These particular first-time purchasers did not want to take the risk of not being able to insure their biggest asset due to likely increased annual insurance premiums when the current premium was already high comparative to their income.

It’s not always the case, however, that increased knowledge relating to a climate risk will cause a party not to proceed. As a solicitor, it is not up to me to decide what a client should or shouldn’t accept when it comes to climate risks, rather it is my duty to ensure they have access to current and reliable information so they can make an informed choice.

With climate change increasing the risk of natural disasters, how do environmental factors influence property strata, levies, and body corporate decisions?

People looking to purchase in a strata complex cannot be blind to environmental factors. I can recount many times acting for clients purchasing a unit located in a flood zone where they have laughed and said: “oh but our unit is on the 3rd floor, we won’t be impacted by flood”. While they might be right that flood water is unlikely to reach their level, what I need to explain to them is that due to the way levies in a strata complex are structured, they will be liable along with the rest of the owners for any uninsured flood damage caused to any part of the building. Further, the decision to insure against flood damage will not be solely up to them but rather may be subject to a vote. It is important before entering into an unconditional contract that a satisfactory strata report is obtained confirming whether the owners corporation strata insurance extends to damage caused by flood.

How do you see the role of due diligence evolving as environmental risks become more prominent? What trends should practitioners be aware of in the coming years?

In its Climate Change Practitioner Guidance, the NSW Law Society suggests there is an ‘evolving duty of care owed by solicitors to their clients’ to provide advice on legal problems that meaningfully address climate change issues and related consequences. In its Climate Change Policy, the Law Council of Australia states, “Lawyers should be alive to the unfolding implications of climate change and its consequences”. In the context of property transactions, this means solicitors should be informed, skilled, and ready to assist clients on matters such as physical risks to property from changing weather patterns, increasing threats of drought, fire, flood and other natural disasters, and coastal erosion.

In the context of commercial transactions, legal practitioners have a duty to help their clients understand their obligations to environmental compliance requirements. Lawyers working on commercial contract should be prepared to draft contract conditions that adequately address relevant climate impacts and risks, and that foster eco-friendly commercial operations. The NSW Law Society has stated the ‘applicability of this professional duty of care to advise, warn and disclose climate risk while providing legal advice is set to become increasingly relevant and enforceable with increasing awareness and knowledge of climate risk’.

There is a responsibility also on the legal profession to consider how in the course of legal practice, our actions are contributing to climate change. This will likely involve looking at how we as legal practitioners can reduce our own carbon footprint and how we can introduce more environmentally sustainable business practices, for example paperless communication, video conferencing where possible instead of travelling, minimising waste, recycling, promoting working from home, and encouraging pro-bono work that advances sustainable environmental and social governance goals.