A common aspect of many property transactions in Queensland is the Buyer undertaking appropriate physical inspections to ensure they are satisfied with the property before purchasing.
One of the most common of these is a building and pest inspection, where the physical dwelling/s on the property are searched and inspected by a licenced professional to ensure there are no nasty hidden surprises or large structural issues.
Where a contract is ‘subject to a building and pest inspection’, this means that the contract is subject to and conditional upon the buyer obtaining a building and pest inspection report which they are satisfied with, that they are acting reasonably, and that they are happy to proceed with the purchase.
The building and pest clause is entirely for the Buyer’s benefit, and protects them from purchasing a property with structural issues or pest concerns.
What Is A Building & Pest Inspection?
A building inspection can uncover structural, conditional and/or design defects or concerns in the interior and exterior of a property. These might include:
Structural cracking
Faulty roofing
Rising damp or moisture build-up
A pest inspection can uncover evidence of termite damage. It's important to note that not every inspector can determine if termites are still present at the property.
Identifying and fixing problems before you purchase a property will often save significant costs later. As discussed a bit later, any issues that may be found in a building and pest inspection can also be used in negotiations with the Seller if you are still interested in purchasing the property, but want the purchase price lowered or any issues to be fixed.
How Do I Know If My Contract Is Subject To A Building & Pest Inspection?
Whilst building and pest inspections can be set at any time as agreed between the parties, they are generally undertaken within 7-14 from the Contract Date.
In a standard form REIQ contract, this date must be specified on Page 3, as can be seen below.
If the inspection date has been left blank, the contract is likely not subject to building and pest. However, there may be exceptions, such as when there are further special conditions or other considerations.
In a standard REIQ Contract, standard term 4 provides specificity on the rights of the Buyer and Seller, and the strict timeframes in which these rights can be exercised.
If you require a building and pest inspection, and are unsure if the contract has been prepared and worded correctly, or sufficient time has been set to undertake these inspections, it is always recommended to have a solicitor review the draft contract prior to signing it.
Who Undertakes A Building & Pest Inspection?
In Queensland, a building and pest inspections must be undertaken by a licensed inspector; but what does this mean exactly?
A building and/or pest inspector is a person who is licensed to undertake residential building inspections under the Queensland Building and Construction Commission (QBCC). Before hiring any company or individual to undertake your building and pest inspection, always ensure the inspector holds a current licence from the Queensland Building and Construction Commission.
The inspection itself will generally take a few hours, and the report can take up to 2-3 days after this to be provided.
Remember, the building and pest inspection due date is the date in which you must notify the Seller if you wish to proceed with the purchase, NOT the date in which the inspection must be undertaken. Noting the above timeframes (the report may take a few days), it is always recommended to arrange a building and inspection as soon as possible.
Building and pest inspections inspections are paid for by Buyers. Costs will vary depending on the location of the property, size of the property, and the extent of the inspection, but typically will cost anywhere from $500 – $1,000.
Solicitors are not building and pest inspectors, and these inspections are generally scheduled and conducted without the direct involvement of a law firm. A Real Estate Agent will generally liaise with the parties and the building and pest inspector to arrange a suitable time to access the property. Your conveyancer or solicitor will liaise with you to ensure your rights are being protected and can assist in any negotiations between the parties.
I Have The Building & Pest Inspection Report... What Next?
As the Buyer, if you've had a licenced professional undertake a building and pest inspections, and have been provided with a report, your first task is to review the report to determine if you are satisfied with the results.
It's important to remember that because solicitors are not building or pest inspectors, they cannot tell you what things mean, how much they may cost to resolve, or whether you should proceed with the purchase. Ultimately, these choices are at your discretion, and will depend of your personal needs, the extent of any damage or concerns, and your financial circumstances.
Where there are significant physical damage or pest concerns, we always recommend the Buyer obtain further quotes to determine how much it would cost to fix these items. These quotes can be advantageous in any further negotiations.
What Are My Options?
Under a standard REIQ or ADL Contract, Buyers have several options available to them when it comes to a Building and Pest condition, although each option does have various risks:
They can satisfy the condition and proceed with the purchase, but once it is satisfied there can be no further negotiation under the condition and there is not avenue to terminate because a building or pest issue found, including issues found at a later date
They can proceed by waiving the benefit of the condition, although we advise against this as it means that you can lose your right to terminate if you are not satisfied with the reports, including issues you are aware or may arise later
Acting reasonably, they can terminate the Contract if you are not satisfied with the building and pest inspection. Under standard term 4.3, the Seller is entitled to request a copy of the report. Failing to act reasonably may result in the Seller disputing your right of termination and either seeking to enforce you to purchase the property or seeking to recover compensation from you
Acting reasonably, they can negotiate for a reduction to the purchase price or for works to be carried out, although any price reduction could affect an existing finance approval or prompt your financier to require a further valuation of the property or to impose further additional conditions in relation to the finance approval. In some instances, it can also result in a rejection of finance approval. Additionally, a Seller is under no obligation to enter negotiations and could reject them under standard term 4.4.
They can seek an extension of time, although the Seller is under no obligation to provide this and can instead terminate the Contract for a failure to exercise an option by the due date
If the due date passes for a building and pest inspection, which is 5:00PM on the due date, the contract is still on foot, but the Seller now has a right to terminate the contract for the Buyer's failure to provide notice.
We have often seen the Seller intentionally go silent during negotiations or not negotiate at all, and then terminate the contract at this time. Whilst sometimes disheartening for buyers, this is the Seller's only remedy if they do not want to undertake works or reduce the purchase price.
In negotiations, your solicitor or conveyancer will guide you through this process to ensure a result can be achieved. It's important to remember that nothing is legally binding unless your rights have been exercised in a specific manner; speaking directly with the real estate agent or Seller is not recommended, as they generally do not understand what is in your best interests, and any promises they make are not binding.
What Is 'Acting Reasonably'?
Unless a Building and Pest condition states it is in a Buyer’s discretion, a Buyer must generally act reasonably.
In determining what is reasonable, a Buyer should consider:
The age of the property
The quantity and severity of the issues
Whether the issues are obvious at the time of inspecting the property
Whether the issues are minor or whether they are major issues
Generally, major structural damage and severe termite infestations are examples of when it may be reasonable to terminate or negotiate a reduction to the purchase price or seek repairs. However, it would not be reasonable where there is only a missing or loose handle, broken light bulb, some minor fair wear and tear or a partially broken fence or cracked pavers.
If I Terminate The Contract, Will I Get My Deposit Back?
If a Buyer has validly terminated the Contract and is not in default, they can get their full deposit back, provided there is no special condition that reverses this right.
If you are unsure if your contract included any further conditions, your solicitor or conveyancer can confirm what your rights are prior to terminating under the building and pest condition.
Still Have Questions?
If you still have questions, don't hesitate to contact our solicitors to see how we can help.
Disclaimer: This publication is not intended to be comprehensive, nor does it constitute legal advice. We are unable to ensure the information is current and there is no guarantee in relation to accuracy. You should seek legal or other professional advice before acting or relying on any of the content of this publication. The views and/or opinions expressed in this publication is that of the author and may not necessarily represent the views and/or opinions of RHC Solicitors.
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