Breaking Down Building and Pest Inspection Conditions

Breaking Down Building and Pest Inspection Conditions

Unless you are buying at auction, most contracts of sale for property in Queensland include a building and pest inspection condition.  Buyers who have the benefit of a building and pest inspection condition can terminate a contract where they have not received a satisfactory building and pest report, acting reasonably.

Although this may sound simple, buyers and sellers commonly misunderstand the operation of this condition and the circumstances giving rise to a right of termination.

For example, if you are selling property and your buyer advises that their building and pest report shows the ceiling is starting to cave in, can the buyer terminate the contract under the building and pest inspection condition? Think:

1. Is the age of the house a factor?
2. Is it a body corporate issue?
3. Is the issue merely cosmetic, or is it structural?
4. Can I see a copy of the building and pest report?
5. Is it worth getting a second opinion from a different building inspector?
6. Can I fix the issue, or does it require the expertise of a licenced tradesperson?
7. How much will it cost to fix?
8. Can it be fixed in time for settlement?
9. What quality of work needs to be undertaken?
10. Did the buyer already consider this issue when they put in their offer and is the buyer using this issue as leverage to reduce the purchase price?

As you can see, many valid questions can arise in these common situations.

You can start by looking at the wording of the standard building and pest inspection condition to see if it provides any direction. This is found in the Real Estate Institute of Queensland’s Contract for Houses and Residential Land and Contract for Residential Lots in a Community Titles Scheme, which are the most commonly used forms for residential transactions in Queensland.  Clauses 4.1 and 4.2 read:

• This contract is conditional upon the Buyer obtaining a written building report from a Building Inspector and a written pest report from a Pest Inspector (which may be a single report) on the Property by the Inspection Date on terms satisfactory to the Buyer. The Buyer must take all reasonable steps to obtain the reports (subject to the right of the Buyer to elect to obtain only one of the reports).
• The Buyer must give notice to the Seller that:
• a satisfactory Inspector’s report under clause 4.1 has not been obtained by the Inspection Date and the Buyer terminates this contract. The Buyer must act reasonably; or
• clause 4.1 has been either satisfied or waived by the Buyer.

Knowing this, try going over the above questions again. Are there any clear answers? Who decides what is and is not reasonable? Unfortunately, the standard terms do not provide any assistance with determining what is a reasonable and valid termination.

In lieu of any assistance from the standard terms, you would need to consider:

1. The age of the property, to determine whether there is a reasonable likelihood of this issue arising in the ordinary course of nature. You should expect less building and pest issues with new builds as opposed to older homes.
2. The severity of the issue, to determine whether it is a consequence of reasonable wear and tear or if it is a serious building defect which an ordinary person should not expect to inherit.
3. The cost to repair the issue, having reference to quotes from one or more licenced tradespersons (if the issue is so significant that the seller is not capable of repairing it themselves and requires the help of a professional).
4. The noticeability of the issue, to determine whether the buyer should have been aware of the issue before making an offer, including whether the real estate agent made the buyer aware of the nature of the issue. In some cases, buyers merely use the building and pest inspection condition as leverage to achieve a price reduction, even where issues are not significant enough to warrant termination.

Unfortunately, parties face this dilemma all the time. This can be overwhelming and shows why it is important for buyers and sellers to engage a qualified lawyer with experience in conveyancing matters. Our firm has been assisting buyers and sellers for over 50 years, and our conveyancing team is equipped with the knowledge and experience to help guide you through your next conveyance. Whether you are buying your first home or looking for a lifestyle change, you can contact us by phone on 07 3397 9622 or visit our website to make an online enquiry.

The blog published by Spranklin McCartney Lawyers is intended as general information only and is not legal advice on any subject matter. By viewing the blog posts, the reader understands there is no solicitor-client relationship between the reader and the blog publisher. The blog should not be used as a substitute for legal advice from a legal practitioner, and readers are urged to consult Spranklin McCartney Lawyers on any legal queries concerning a specific situation.