Purchasing a new home, “buyer beware”
and the importance of building and pest inspections
For most Australians, purchasing a residential property to live in or as an investment is one of the largest financial outlays that they will make in their lifetime. Like any purchase of goods and services, it is important that you protect yourself from buying a “lemon”. When it comes to defective consumer goods or services, by and large, both federal and state governments have strengthened consumer protection for services; such as electricity, gas or internet connections, or goods; such as the purchase of motor vehicles, home appliances or clothing. However, when it comes to buying property, you need to be aware that advances in consumer law have not readily been extended to the realm of property law. Therefore, as a purchaser, you still need to take steps to minimise the risk of buying a “lemon” property.
This raises the important question as to what steps you should take when buying an existing property, to minimise risk and to ensure that you are aware of any potential defects in the property that you want to buy. But to answer this question, we first need to have a quick look at the current legal framework (in this article, defects will be discussed in a broad manner, to include anything from a major structural defect, such as collapsing foundations, pest infestations through to a garage shed that does not have a correct council permit).
Generally when buying a new home, as a purchaser you will be able to rely upon certain protections provided by the Building Act 1993 (VIC) and the Sale of Land Act 1962 (VIC) (“Sale of Land Act”), whereby the legislation requires the Vendor to provide particular information in the Vendors Statement, such as: copies or particulars of Building Warranties, Builder Warranty Insurance (provided that the value of the works is over $16,000.00) and any relevant Building Permits and Occupancy Permits. The purpose of these documents is to disclose whether the building structures have been constructed in accordance with the relevant building regulations and codes, and critically, who the relevant builder is in the event that there are defective building works that need to be fixed.
It is important for purchasers to understand that this disclosure does not act as a warranty or guarantee per se. If there are defective works and they are less than 7 years old, a purchaser will still have to use their own time and energy to get in contact with the registered builder to ensure that the rectification works are done. Outside of that time period, the builder is not obliged to fix the defects. Ultimately, Builder Warranty Insurance, only provides limited protection, as this insurance can only be relied upon once the registered builder is insolvent or deceased. If the house, extensions or renovations are older than 7 years, then there is not the same requirement under the Sale of Land Act to provide the same level of disclosure. Consequently, purchasing an existing home can be at times more akin to buying a used car.
Under this legal framework, you as a purchaser have a limited options to sue a Vendor if the building is defective. Thus, the phase ‘Buyer Beware’ is as important today as it was 100 years ago. Unless there has been fraud or deception on the part of the Vendor, some sort of misleading and deceptive conduct by the Vendor or its agents or a failure to disclose documentation that should have been disclosed in the Vendors Statement, ultimately you are going to have a tough time seeking damages from the Vendor or trying to get out of the Contract of Sale of Land (‘Contract’).
Worse still, even if you believe that you have a reasonable case against the Vendor, where the Vendor has not disclosed some sort of defect in the structure, or if there was some sort of misleading and deceptive conduct by Vendor or its agents, case law such as McInnes v Edwards [1986] VR 161 and Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83 makes it clear that if you are to succeed against the Vendor or its agents for not disclosing a building defect, then the evidentiary threshold bar is set quite high. And, even if you have the ‘smoking gun’ evidence that the Vendor or the agent has committed some sort of fraud or engaged in misleading and deceptive conduct (where they did not disclose the building defect when they should have), the actual cost of litigation may far outweigh the actual cost of rectifying the building defects. Consequently, from a legal and a practical perspective, it makes far more sense for you to ensure that you can identify any potential defects prior to entering into a Contract. That way, if any potential issues or building defects are identified, they can be dealt with accordingly, saving you money, time, and stress.
In light of this, we need to go back to our original question, ‘what steps should you take when buying an existing property, to minimise risk of buying a defective property?’
Put simply, as a purchaser, you should do a thorough inspection of the property prior to signing the Contract. Ideally, if you have any concerns about the condition of the property, it is advisable to engage a registered building inspector to inspect the property prior to signing the Contract. However, getting a registered building inspector to check the property prior to making an offer for the property is not always feasible. In such a situation, we would recommend that you make the Contract subject to a satisfactory Building and Pest Inspection Report special condition.
The importance of such a special condition in the Contract, cannot be overstated. For example, in the event that your building inspector identifies a substantial structural defect, illegal works or a pest infestation, and the Contract is subject to a satisfactory Building and Pest Inspection Report, then under the Contract, you could elect to pull out of the Contract or alternatively re-negotiate the purchase price with the Vendor to take into account the costs of repairing or attending to the defects or illegal works. This point is critical… If the Contract is not subject to a satisfactory Building and Pest Inspection Report, and your building inspector were to find a substantial structural defect, then you would not be able to pull out of the Contract or renegotiate the purchase price. In this case, you would stuck with a “lemon”.
But even making the Contract subject to a Building and Pest Inspection Report may have its pitfalls. For example, if the wording of the actual condition is poorly worded or ambiguous, it may not give you the protection that you think that you are getting, or worse still, the wording of the condition may favour the Vendor, at your expense. As such, it is always advisable to get your legal practitioner to review the wording of the Building and Pest Inspection Report special condition, prior to you signing the Contract.
Unlike defective consumer goods, which can be returned to the shop that you purchased them from, if there is a major building defect or infestation of the property that you just purchased, resolving the matter will not be as simple as producing a receipt to the Vendor. In a worst case scenario, the cost of rectifying the building defect could turn what should be a dream purchase or investment, into a costly nightmare. As such, you should view a building inspection report like a pre-purchase mechanics inspection of motor vehicle. I.e., a small investment that will provide you with some protection, knowledge and assurance. Attempting to skimp on a building and pest inspection could cause you to suffer financial and emotional stress.
Should you have any further questions in regards to building and pest inspections, need a Contract reviewed or have any other property law enquiries, please feel free to contact our property law team.
Published: 29 February 2016