The building and pest condition is an essential term of any residential contract. It gives the buyer crucial protection to exit out of the contract, if there is something wrong with the property that would be of significant cost to the buyer to fix. This article will discuss:
- each party’s obligations;
- how a party can terminate the contract under this condition; and
- what a buyer should do and be aware of when organising a building and pest inspection.
The contract will only be subject to the building and pest condition if a date is inserted under the “Building and/or Pest Inspection Date” in the contract. If this date is completed, then the contract will be conditional upon the buyer obtaining a written building and/or pest report by the building and pest inspection date (due date).
The buyer is required to take all reasonable steps to obtain the reports. That means the buyer cannot organise someone to obtain the reports only the day before the due date. It would not be expected that a buyer would wait until the day the condition is due to call an inspector to obtain the report. Therefore, when we discuss your contract with you, we will always ensure that you have contact details for a building and pest inspector or we will provide you with recommendations for one.
The buyer should liaise with the selling agent to arrange a time for the building and/or pest inspector to come and inspect the property. The inspection can be arranged for any time that is convenient and the seller must provide access to anyone inspecting the property in relation to this condition, if reasonable notice is given to the seller.
Notifying the Result of the Condition
The buyer must notify the seller’s solicitor by 5:00pm on the building and pest inspection date of the following outcomes:
- the building and pest condition has either been satisfied or waived; or
- the building and pest condition has not been satisfied and the buyer terminates the contract.
There is a third unofficial option where the buyer and seller negotiate things the seller will do in exchange for the buyer satisfying the condition. This could include negotiating a reduction to the purchase price or requiring the seller to fix some property defects.
Terminating the Contract
If the buyer wishes to terminate the contract, then the buyer must be acting reasonable. There is no criteria for what is reasonable, acting reasonably would be considered on a case by case basis. However, a buyer determines whether the reason they are not satisfied with the results would be fair to an objective third party. For example, terminating the contract when the only defect identified is one broken door knob would not be reasonable, as it is a low cost to fix this issue. Compare this to the following minor defects that may be identified in a report:
- the pool gate is not compliant with safety laws and requires replacement;
- the roof gutter is broken and requires fixing;
- the concrete pavement in the backyard has multiple cracks; and
- there is some water leakage in the bathroom.
Fixing all these little defects may incur significant costs to the buyer. Therefore, it is more likely to be reasonable for the buyer to terminate the contract in this situation.
When a buyer is seeking to negotiate with the seller or terminate the contract, the buyer may need to provide the seller with copies of the reports. It is a requirement under the building and pest condition that if the seller requests the buyer provide a copy of the building and pest reports, then the buyer must provide them. This is so the seller can ensure that the buyer’s requests are backed by the professional opinion of the inspector.
Failure to Notify by the Due Date
If the buyer does not provide written notice of satisfaction or termination of the condition by 5:00pm on the due date, then the seller can provide written notice terminating the contract at any time after 5:00pm. Even if the buyer and seller are negotiating the condition, once 5:00pm comes around on the due date, the seller can stop negotiating and terminate the contract.
It is important to note that the seller’s right to terminate the contract is subject to the buyer’s right to give notice satisfying the condition. Therefore, if the buyer satisfies the condition at 5:05pm on the due date and the seller has not yet given notice terminating the contract, then the seller’s right to terminate ends once the buyer gives notice that the condition had been satisfied.
What can a lawyer do for you?
Lawyers have plenty of experience with reviewing contracts and dealing with building and pest inspection conditions. The right lawyer will give you beneficial insight and advantage by:
- providing recommendations for building and pest inspectors if a buyer requires it;
- assisting you in your understanding your key duties under the condition;
- negotiate on your behalf for any compensation in order to proceed with the contract; and
- assist you with implementing a strategy to receive the best result (i.e. requesting a price reduction and if an agreement is not reached by 5:00pm on the due date, then proceeding with the contract).
If you have any questions or require assistance with a conveyancing matter in Queensland, please contact the property team at NB Lawyers for more information.
Kayleigh Swift, Associate
Chloe Skubis, Graduate Law Clerk
About the authors
Kayleigh Swift is an associate in our Commercial and Property team who assists with Employment Law matters. With a high level of experience in commercial and retail leasing, voluntary and involuntary purchase and sale acquisitions, property development and employee relations, Kayleigh provides practical advice to ensure smooth business transactions.
Chloe Skubis is a Graduate Law Clerk in our Property team who assists with various conveyancing transactions. Chloe is very experienced in residential conveyancing and is a problem solver. She always provides efficient service to all her clients.