Buying a property?
5 Things you need to know about the Builders report clause

When you are looking to purchase a property, obtaining a builder’s report as part of your due diligence can provide you with valuable insight into the condition of the property and uncover any structural issues, weather tightness problems, or deferred maintenance that might be required, before you commit to the purchase; potentially saving you significant headaches and financial burdens down the track.

If you elect to include the builder’s report condition on the front page of the agreement, the agreement will be conditional upon you receiving a satisfactory builders report.

Clause 9.4 of the General Terms of Sales sets out the provisions for this condition. The clause states:

“9.4 Building report condition

(1) If the purchaser has indicated on the front page of this agreement that a building report is required, this agreement is conditional upon the purchaser obtaining at the purchaser’s cost on or before the building report date a report on the condition of the buildings and any other improvements on the property that is satisfactory to the purchaser, on the basis of an objective assessment.

(2) The report must be prepared in good faith by a suitably-qualified building inspector in accordance with accepted principles and methods and it must be in writing.

(3) Subject to the rights of any tenants of the property, the vendor shall allow the building inspector to inspect the property at all reasonable times upon reasonable notice for the purposes of preparation of the report.

(4) The building inspector may not carry out any invasive testing in the course of inspection without the vendor’s prior written consent.

(5) If the purchaser avoids this agreement for non-fulfilment of this condition pursuant to clause 9.10(5), the purchaser must provide the vendor immediately upon request with a copy of the building inspector’s report.”

This clause is intended to provide protection to the purchaser. However, it is important to note:

Type of report
For the purchaser to have the benefit of this clause, the purchaser must obtain a written report prepared by a suitably qualified builder – not a verbal report from your ‘handy mate’, prior to your condition due date.

No automatic right to cancel
The purchaser does have the ability to cancel the agreement under this clause if they receive an unsatisfactory builder’s report. The key point to note here, however, is that the report must be deemed unsatisfactory on the basis of an objective assessment. For example, the report must disclose a material issue that a reasonable purchaser would be concerned about. A purchaser cannot cancel the agreement based on insignificant matters (e.g. chipped paint, loose door handles or common cosmetic wear in older homes) or if they simply change their mind about the property.

Negotiation
If the builders report, properly obtained, identifies defects, although it is not a requirement under the agreement, the purchaser can attempt to negotiate with the vendor and request that they rectify these defects prior to settlement; however, bear in mind, the vendor does not have to agree to this.

Beware of alternative clauses
It is common for alternative builder’s report clauses to be added to the further terms of the agreement (replacing clause 9.4). Often these clauses require the purchaser to first notify the vendor of any defects identified in the report and provide them with the opportunity to rectify those defects before the purchaser is entitled to cancel the agreement. Keep an eye out for clauses like this as they may not be in your best interest as purchaser.

Provide the report

If the purchaser cancels the agreement due to an unsatisfactory builders report, the purchaser is required to provide the vendor with a copy of the report if requested.

This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.