In this newsletter we will explore some recent problems clients have had with the standard building inspection condition and how you might avoid these problems.
Insufficient Access
Our client was buying a property that was inhabited by a hoarder.
There was clear evidence that there was termite activity around the property.
However, the inspector could not get access to large parts of the skirting boards and like areas inside and outside the home to do the necessary tests.
Whilst the inspector was suspicious that the home was infested by termites the inspector could not confirm this and hence the report could not state that there was a live termite infestation.
Without a report confirming a live infestation – the client could not rely on the standard pest inspection condition to terminate the contract.
Asbestos
The client signed a contract to buy a 1960’s era home using a standard contract with a standard building inspection condition.
The inspector reported that the inspector believed that there was asbestos present in various places around the home.
The client wanted to terminate the contract.
We had to advise the client that they could not terminate the contract. Asbestos, whilst potentially very harmful in some situations, is regarded as stable when properly maintained in products such as concrete sheeting. The inspection report did not state that this was a “major defect”.
The standard building inspection condition
The relevant part of the standard building inspection condition in the LIV / REIV contract is:
21.2 The purchaser may end this contract within 14 days from the day of sale if the purchaser:
(a) obtains a written report from a registered building practitioner or architect which discloses a current defect in a structure on the land and designates it as a major building defect;
(b) gives the vendor a copy of the report and a written notice ending this contract; and
(c) is not then in default.
Effectively, the inspector needs to certify that they have found a “major defect” before you can terminate the contract. Note that time limits apply and that you can’t be in default under the contract (watch the deposit obligations).
However, an inspection may raise issues, such as asbestos or water leaks – that are not major defects – that could cost substantial sums to repair.
It is for this reason that we recommend the following special condition to our clients in preference to the standard special condition:
“Building Inspection
This Contract is conditional upon the Purchaser receiving a building inspection report on the Property, at the cost of the Purchaser, that is reasonably acceptable to the Purchaser within 14 days of the date of this Contract. The Vendor will allow the inspector access to the Property upon reasonable notice. Should the report not be acceptable to the Purchaser then the Purchaser shall give written notice to the Vendor or the Vendor’s estate agent of this fact. Should the Purchaser terminate the Contract pursuant to this Special Condition then any Deposit paid shall be refunded to the Purchaser without delay. General Condition 21 will not apply to this Contract.”
This special condition means that if the report is not “acceptable” to you then you can terminate the contract. In situations where the defect is not a “major defect” but will still cost a substantial sum to repair – this minor distinction could make all the difference.
You may get some push back from estate agents. However, you need to remember that they are working for the vendor and not for you. If the Vendor believes that the house is sound – what do they have to fear from a more balanced building inspection condition?
Purchase Contract Reviews
This is one of many issues that we cover in our purchase contract review service.
For $165.00 (inc GST) you can book a time to review the contract with me – by phone or zoom call – so that we can discuss the issues I think all purchasers should be aware of, any specific issues with the contract and special conditions that may help save you money and better tailor the contract to your needs.
Click here to book a time.
The Most Ridiculous Thing
I am in the process of obtaining a mortgage for an investment property. (This will be the subject of a future newsletter.)
I have been advised that I will be required to obtain a solicitor’s certificate. That is a certificate from a solicitor that I understand the mortgage documents. Never mind that I have been providing these certificates for clients for decades!
Next Time
Next time we will explore my observations from going through the process of obtaining an investment property loan.
As always, if you know of someone that may benefit from this material – please share this article with them.
Lewis O’Brien
Your Preferred Property Lawyer