Building Inspections for Residential Property Purchases – Some Traps for the Unwary Buyer to be Aware of

Buyer Beware

If you are buying a residential house or unit in Queensland you should be aware that in general the law’s position is “Buyer beware”. Apart from strata properties, there are very few consumer protection warranties about the state of repair of a property implied by law.  As a result of the lack of any implied warranties, most buyers choose to have the property they wish to purchase inspected by a qualified professional prior to legally committing to the purchase. Thus typically the Offer made on a property will be subject to a satisfactory building inspection.

The Contract of Sale that is most commonly used for the purchase of houses and units is that which is published by the Real Estate Institute of Queensland and approved by the Queensland Law Society. This contract is usually referred to as the REIQ Contract. The other regularly utilized contract is prepared by ADL.

Subject to satisfactory building and/or pest inspection

Both the REIQ and ADL contracts have the option for buyers to make their offer subject to a satisfactory building and/or pest inspection. The standard conditions in the REIQ contract and the ADL contracts relating to the building inspection are broadly similar. The buyer needs to ensure the completion of their contract is subject to this set of conditions by completing the appropriate part in the contract’s Schedule. Note that if that part of the contract details are not completed then the building inspection conditions do not apply! Always ensure that this section of the contract is completed per your negotiations before you sign

The ADL contract allows the Seller to insert details of defects or other things that are to be excluded from the building inspection – these are issues that the buyer is not allowed to rely on in deciding if the building inspection is unsatisfactory. The ADL contract also states if the inspection reports outlines that the property is “at risk of termites”, that is not sufficient reason to terminate the contract.

Some traps for the unwary

Both the REIQ and ADL contracts include specific requirements that may catch out an unwary or inexperienced buyer:

  1. Buyers must use professionally qualified inspectors to prepare the report

This means you cannot use any builder to do perform the building inspection (even though they might be “your mate”). The inspection must be carried out by someone who is correctly licensed by the Queensland Building and Construction Commission to carry out pre-purchase building inspections. This is a critical factor should you wish to terminate if the inspection is not satisfactory.

Similarly, pest inspections must be carried out by QBCC licensed pest inspectors and pool inspections must be carried out by inspectors licensed by the Pool Safety Council.

  1. The Buyer must act reasonably

A buyer must take all reasonable steps to obtain the report/s by the due date and the buyer must act reasonably in deciding if the report is not satisfactory.  A buyer cannot simply change their mind about the purchase and say it is due to not being satisfied with the building inspection report. The Buyer MUST have had a report undertaken by a properly licensed inspector AND the report MUST identify any issue/s that give the purchaser reasonable grounds to decide not to proceed.

  1. Buyers can be required to provide a copy of an unsatisfactory report

If a buyer does decide to terminate the contract for an unsatisfactory building inspection, then the Seller can request that the Buyer provide a copy of the inspection report so the seller can determine if the buyer’s concerns are reasonable. The ADL contract goes a step further and provides that any purported termination notice given by the buyer for an unsatisfactory building inspection is not effective until the buyer provides a copy of the report to the seller (if requested by the seller).

  1. Council/building approvals

A building inspection report by a professional inspector does not usually include any investigation of whether structures on the land have the required building approvals by council. In fact, this issue is normally specifically excluded in the inspectors engagement contract.

Houses built after 1974 or extended/modified after that year generally need a building approval certificate. Garden sheds and some pergolas often do not need approval unless they exceed a certain size. Unless buying vacant land, buyers should consider whether they want their lawyer to investigate improvements made to the property being purchased to ensure it complies with the local council requirements. This kind of investigation often raises two distinct types of issues:

  • Improvements built without obtaining the required approvals; and
  • Improvements that had an initial approval but the necessary follow up inspections or final paperwork was not provided.

Surprisingly, the standard terms in the REIQ and ADL contracts do not give a buyer automatic termination rights if the lawyer’s search turns up these issues. To give some legal teeth to this type of investigation, the buyer needs to either add a special condition specifically addressing this issue OR arrange the investigation and provide the details to the building inspector to include in their building inspection report.

  1. Re-purposed rooms or buildings

Even though a shed or space under a house may not have originally required a building approval or had been approved in the past, the conversion of that shed or space to a granny flat will almost always require a fresh approval. This is because the use of the shed or space was not originally considered a “habitable room” and there are different requirements for ceiling height, concrete slab design and termite treatment of the area. Many spaces and sheds are simply not able to meet the standards required for the proposed conversion and so they cannot lawfully be used for that purpose.

Even though a buyer might choose to ignore the legality (or otherwise) of a building or its use, this can be raised as an issue at a later time, such as for an insurance claim due to the need to fully disclose all relevant information in the insurance application.

  1. Dealing with a discovered problem

If a building inspection identifies some significant issues, the buyer’s sole remedy under the building inspection condition is a right to terminate the contract. There is no automatic right to require the seller to fix the problem or offer a discount on the sale price, however these are options available to the buyer and seller to consider. In practice, a real estate agent will normally encourage a seller to address the issue/s raised or reach some form of acceptable compromise with the buyer.

There is no corresponding obligation on a seller to act reasonably in relation to an identified issue and they can simply refuse to do anything. In that case, the buyer can find themselves choosing between losing the property if they terminate, or having to budget to rectify issues that they didn’t initially budget for when making the offer.

How units differ

This position is slightly different for units and other strata properties. The legislation around units and strata titled properties automatically implies a general warranty in each sale contract that there are no obvious or hidden defects in the common property, unless the Seller specifically says otherwise. This can be helpful for buyers as in many cases much of the external structure of the unit is part of the common property.

A buyer should still consider having a building inspection undertaken despite this general warranty as it is much more costly to try and get your money back than it is to simply walk away from a big problem!

If you would like assistance with your property purchase or for your contract to be perused prior to execution, contact our experienced Smart Move Conveyancing team today on 07 4616 9888.