Nobody wants to buy lemon, do they?
One way of ensuring that you’re not buying a lemon is to make your contract subject to building and pest inspection.
In this article, we discuss:
- what a ‘subject to building and pest inspection clause’ means; and
- what a buyer needs to do when a contract is subject to building and pest inspection.
What does ‘subject to building and pest inspection’ mean?
If your contract is subject to building and pest inspection, it means that the sale is subject to a satisfactory building and pest inspection report. If you are not satisfied with the building and pest inspection report, you may choose to terminate the contract without penalty.
The Building and Pest Inspection Clause
Clause 4.1 of the REIQ contract provides that the contract is conditional upon the buyer obtaining a written report from a building and pest inspector by a specified date upon terms that are satisfactory to the buyer.
However, clause 4 will only be engaged when an inspection date is inserted into the contract. It is therefore imperative that your contract is completed correctly otherwise you may inadvertently lose your right to a building a pest inspection.
What does a buyer need to do?
The REIQ Contract specifies that a buyer must take all reasonable steps to engage a building and pest inspector to provide a written report. This means that a buyer must engage a building and pest inspector to provide a report within the nominated time.
You must liaise with the real estate agent to schedule a building and pest inspection report. It is a good idea for you to be present on the day of the inspection.
Once a buyer has engaged a building and pest inspector, there are two possible outcomes:
- the building and pest inspector will provide a written report; or
- the building and pest inspector will require more time to conduct the inspection or complete the report.
In all instances, a buyer must inform his or her conveyancer about the outcome of the building and pest inspection in a timely manner.
Request an extension of time
If the building and pest inspector requires more time to conduct the inspection or provide a report, a buyer may seek an extension of time. However, there is no guarantee that the seller will grant an extension.
Review the building and pest inspection report
When you get a copy of the building and pest inspection report, you must review the report to determine if you are satisfied with the condition of the property.
You may also wish to direct any queries and questions you may have to the building and pest inspector.
Where you are buying a pre-owned property, it is important to bear in mind that the condition of the property will not always be perfect. You must be prepared to accept fair wear and tear – it is likely that there will be some minor repair or maintenance that will be required.
A buyer generally has 3 options:
First Option: Satisfy the Condition
If you are happy with the report, you must inform your conveyancer so that your conveyancer can satisfy the building and pest inspection condition. If there are no other conditions that need to be satisfied, the contract becomes unconditional.
Second Option: Terminate or Negotiate
If there are issues with the property and you are not happy with the report, you may exercise your right to terminate the contract without penalty or you may seek to negotiate a reduction in the purchase price or get the seller to agree to carry out repairs.
If you are minded to terminate the contract, you must act reasonably. Reasonableness is determined on a case-by-case basis. Three factors are generally considered when determining what is reasonable:
- the age of the property;
- the number of defects and the severity of the defects; and
- whether the issues were obvious at the time of inspection and when the prices was negotiated.
For example, major structural damage or termite infestation would typically be reasonable reasons to terminate a contract.
If the contract has been properly terminated, you may be able to receive a refund of any deposit paid. However, be aware that:
- any termination must be done before the expiry of the time nominated in the contract to satisfy the building and pest inspection report; and
- the seller may request a copy of the building and pest inspection report.
If there are issues with the property and you would still like to procced with the purchase, you may wish to negotiate with the seller’s conveyancer to:
- request a reduction in the purchase price; or
- request that repairs be carried out on or before a certain date.
The seller is under no obligation to enter into negotiations or agree to your requests. Your conveyancer will engage with the seller’s conveyancer to negotiate a resolution but there can be no guarantee of a successful outcome.
In all cases, any negotiations must take place before the expiry of the building and pest inspection.
Third Option – Waive your Right
You may waive your right to the building and pest inspection condition and proceed with the purchase. For example, you may waive your right where you are unable to get a building and pest inspection report within the nominated time and the seller has not granted you an extension of time. Remember, waiving your right to the building and pest inspection is not without risk – you may end up with a lemon!
What happens where a buyer fails to give notice as required?
If a buyer fails to give notice of the satisfaction of the building and pest inspection by 5 pm on the nominated date, the seller may terminate the contract by notice to the buyer.
Conclusion
A sure way of avoiding buying a lemon, is to make your contract subject to a building and pest inspection report. Remember that time is of the essence, so it is best to engage a qualified building and pest inspector to conduct an inspection and provide his report well before the date nominated in your contract to satisfy the building and pest inspection condition.
If you have any questions about this article or wish to discuss its contents, please call 1300 080 569 or email [email protected]
Irfan Ebrahim
02 January 2022
DISCLAIMER: This article is provided for general information purposes only. Its content is current at the date of preparation. Changes in circumstances or policy or legislation after the time of preparation may impact the accuracy of the information provided. It is not legal advice and is not tailored to meet your individual needs. You should obtain specialist advice from a qualified professional based on your specific circumstances before taking any action concerning the matters discussed in this guide. One80 Conveyancing Pty Ltd will not accept liability for any reliance on this article, including but not limited to, the accuracy, currency or completeness of any information or links.
