In Queensland, the Real Estate Institute of Queensland (REIQ) contract is the most commonly used contract for purchasing property. A key condition within these contracts is the building and pest inspection clause, which gives the buyer the option to terminate the contract if the inspection findings reveal issues that prevent the property from meeting their expectations, provided the buyer acts reasonably. It is important for buyers to understand this clause so they know what they can and cannot do when terminating a contract based on building and pest inspection results.
Building and Pest Condition
The building and pest inspection clause in an REIQ contract allows the buyer to conduct inspections to ensure the building is structurally sound and without pests, including termites. These inspections must be carried out by qualified inspectors. If the building and pest inspections reveal defects that are significant from a structural perspective, the buyer may choose to terminate the contract, but must act reasonably when making their decision.
Reasonableness in termination comprises meeting objective criteria that are set out in the contract and by law. This includes:
- Undertaking Proper Inspections: Buyers must arrange for their building and pest inspections to be done by properly licensed inspectors who follow criteria under the Building Act 1975.
- Giving Notice: Buyers should schedule inspections well in advance to allow sufficient time for the inspector to complete the inspection and prepare the report. The buyer must then notify the seller of the inspection results within the timeframe specified in the contract.
- Detailed Reporting: The inspection reports should be detailed and specific, stating the defects and their effect on the property. The seller has the right to request a copy of the building and pest report, and any ambiguous or unproven assertions will not meet the standard of reasonableness.
Objective Concerns: Subjective versus Objective Issues
A buyer should be able to distinguish between objective issues and subjective concerns. Objective issues are problems that materially affect the value or liveability of the property, such as major termite infestations in the dwelling, structural damage, or severe water damage. These are typically identified by the building and pest inspector as “serious”. Subjective concerns, on the other hand, are cosmetic issues or minor defects that do not significantly impact the structural soundness of the property. These are imperfections such as general deterioration, blemishes, or weathering. Acting reasonably involves identifying the former serious issues, and not the latter as grounds for termination. In determining what is reasonable, factors such as the property’s age, the extent and severity of the issues, and whether the issues were apparent during the buyer’s inspection when the price was negotiated should be considered.
Some buyers may attempt to negotiate a lower price or request that the seller address defects before settlement. However, these are not contractual rights, and the seller is under no obligation to agree to such negotiations. Under the REIQ contract, the buyer’s only option is to terminate the contract if they are not satisfied with the results of the building and pest inspection, provided they are acting reasonably. Buyers should therefore thoroughly inspect the property for minor defects before signing the contract, as they cannot terminate the contract under the building and pest condition for such issues. Examples of minor defects include small cracks in plaster (that do not affect structural integrity), worn carpets, rusty garden sheds, deteriorating fencing or pool decking, faulty light switches or ceiling fans, and cracks in driveways or pavers. Buyers have no contractual right to pressure the seller by refusing to settle due to these types of issues.
Legal Advice and Help
Considering the complications, when a buyer is working with building and pest conditions in contracts under REIQ, he or she needs to get legal advice. Preston Law can advise on whether reasonable termination grounds exist and assist accordingly. Professional legal representation ensures that what the buyer is doing or has done is both within the perimeters of the contract and not in any way against the law.
Conclusion
When purchasing an existing dwelling in Queensland, it is reasonable to expect some minor repair and maintenance issues. Buyers do not have a contractual right to terminate the REIQ contract under the building and pest condition for cosmetic defects. Terminating the contract under these conditions requires the buyer to act reasonably. Therefore, it is crucial that buyers take the time to carefully consider the state of the property before making an offer and signing the contract, ensuring they are fully aware of any obvious maintenance issues.
If you require assistance with purchasing a property, or have any further questions about terminating an REIQ contract under the building and pest condition, contact our experienced conveyancing team today for expert advice and guidance.