(This FAQ does not apply to buying a new property in the same way as to buying an established home. See more details regarding new properties at the end.) Buying a property is the biggest investment many people will ever make. Yet they often take far more car when buying a car: either choosing one with a long manufacturer’s warranty or getting a mechanical inspection done first. Some buyers are even smart enough to make the contract conditional upon having a builder certify that the property has no structural defects.
There is a serious problem with most of these clauses which we have seen, however. A property may have serious defects, which could cost you thousands, which are not structural. You cannot, of course, expect the Seller to agree that the property has no defects at all. A middle ground between The two positions, however, is for the clause to state that: “The property is free from 1) structural defects; and 2) significant non-structural defects which would not be obvious to a reasonable buyer on a standard pre-purchase inspection.”
Therefore, you should request that the contract includes a condition with the following features:
- The Buyer may have the property inspected by a building inspector before settlement to prepare a report on whether any defects of the above kinds exist which complies with Australian Standard AS 4349.1—2007.
- If defects are found, the Buyer may have the property inspected by appropriate trade persons to quote the costs of having the defects repaired.
- If defects are found, the Seller must either fix them before settlement to the Buyer’s reasonable satisfaction or allow a discount off the purchase price of the quoted cost of repairs.
Some issues around including this kind of clause in the contract are set out below. (These are the same issues that arise in relation to conditions about Built-in appliances being in working order and the building being free from destructive timber pests):
- The Seller may not be prepared to take the risk of an unknown liability for repair costs. Sometimes the Seller will accept the clause only if it also says that they may terminate the contract if they do not agree to pay the repair costs and you do not withdraw your demand that they be paid.
- The Estate Agent will prepare the clause unless you give them your own version – which you can get from us for free. The Estate Agent may say their wording is “standard” so you should just accept it. Estate Agents act for Sellers not Buyers. Therefore some clauses they put in contracts; even “standard” clauses prepared by REIWA, may favour the Seller. Who will win the negotiation over the wording of the condition depends on who wants the deal more.
- Never accept a pre-prepared report or the Seller arranging the report, unless it’s at an auction. You can, however, try to have the Seller agree to pay your costs of getting the report. If a builder engaged by the Seller prepares the report they may have no responsibility to you to you if it is incorrect, because you were not their client. Ensure that the contract allows a reasonable time for getting the report and negotiating a solution to any issues which it may reveal.
We can give you free, basic legal advice on negotiating the inclusion of special conditions in your purchase contract if you are nominating us to do the settlement.
When you are buying a new property you may have remedies against the builder for defects which become apparent within six years after the date it was constructed. The builder may, however, have gone out of business by the time you come to make a claim. Builders of some classes of new homes/units must have insurance which covers them for a claim in case go out of business.
IMPORTANT: This information is not legal advice. You reading it does not give rise to a solicitor/client relationship with us. It is general information only. It may be affected by the specific circumstances of your situation. You should not act on anything on this website without obtaining specific legal advice from us.