Will an adverse building report get me out of a house purchase contract?

By 28 February 2017Conveyancing
Will Adverse Building Report Get House Purchase Contract?

We strongly recommend that every purchaser obtain a building report (report) before they purchase a property with structures on it.

There is no general right to complain about defects in structures upon the property you are purchasing.
If the report you obtain is favourable, you can proceed with your purchase in confidence.
If the report you obtain is ‘adverse’, you can consider your options from a position of strength.

Prior to entering into the purchase Contract:

It is not difficult to decide if you should get a report, but it can be difficult to decide when to get a report.
Clearly you do not want to go to the cost of getting a report for every property you consider. You want to know that the Vendor will accept your offer. Generally, when you get to the point of an accepted offer this is when you should set things in motion to obtain a report.

Ideally you instruct and receive the report before you enter into the Purchase Contract. It is likely however that you will want to secure the property and the Vendor will want to secure your commitment to the purchase sooner than that. If this is so then you will need to insist that the Contract be ‘subject’ to your obtaining a report which is not adverse and which is otherwise satisfactory to you. This will allow you to withdraw from the Contract without putting your deposit at jeopardy or being at risk of any other penalty.

The special condition dealing with this issue needs to be carefully drafted to protect your interests. Rather than allowing the real estate agent to draw this special condition you should request that your lawyer do so.

What if you have already entered into the purchase Contract?

If you have entered into an unconditional Contract and later obtain an adverse report then your rights are limited. You may be able to raise a claim against the Vendor if they have made representations about the property which the report proves to be incorrect. You are likely however to still be required to proceed to complete the Contract, subject to your right to claim damages from the Vendor.

Who should provide a report?

You should ensure that your report inspector is appropriately qualified to provide a report, that they give you evidence of proper insurance cover and that the report itself is compliant with Australian Standards. We recommend that if possible the report inspector review council records with respect to the property in order to check that all works with respect to the structures have been undertaken pursuant to a Building Permit (where necessary), have complied with the terms of the Building Permit and that a final inspection of the building works has been undertaken by or on behalf of the council which has resulted satisfactorily.

The report may not address issues such as the presence of loose fill asbestos, compliance of any swimming pool with regulatory requirements, the standard of paint coatings or the proper functioning of appliances. We recommended that you speak with the report inspector as well as carefully reading through the report, to ensure that you understand exactly what the report does and does not cover.

If you receive an adverse report:

Act promptly! It may be that you need to act quickly to preserve your rights. Provide a copy of the report to your lawyer immediately you receive it. If you have concerns about anything in the report, you should then discuss your options with your lawyer and decide what you want to do. You may still want to proceed with the purchase of the property, but you may want to negotiate that the Vendor make good the identified defects or that the price be reduced by a sufficient amount for you to attend to this yourself. Remember – it is a case of ‘buyer beware’, so make sure you are an aware purchaser.

Article By: Alison Butler