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Pre-purchase building inspections

Pre-purchase building inspections

Published on July 25, 2016 by Adrian O’Dea and Greg McAllister

A pre-purchase building inspection report is a valuable tool that can assist a prospective purchaser in identifying whether the property you are interested in buying is a “good buy”, or just a series of problems waiting for you down the road.  While there are a number of things you can do to inform yourself whether the condition of a property is sound, there is no substitute for having a suitably qualified expert to inspect the property to more fully assess a property’s condition.

It is not uncommon for a thorough pre-purchase building inspection report to contain a host of comments and recommendations concerning the property, while indicating that its condition is otherwise sound.  If you choose to purchase the property, the question becomes what obligation, if any, is there for you as the new owner to carry out all the recommendations contained within the report.

In the recent case of Swift v Wearing-Smith [2016] NSWCA 38, the Court of Appeal heard an appeal from the District Court (Wearing-Smith v Smith [2014] NSWDC 159) in a matter involving a fall from a balcony where a glass panel comprising part of the balcony collapsed as a result of corroded metal lugs and posts.  A key consideration for the District Court Judge was a pre-purchase building inspection report obtained by the defendants in December 2002 (prior to purchasing the property in February 2003), some eight years before the fall.  

The pre-purchase building inspection report identified “Issues” and “Safety Concerns”, as well as offering general commentary on the condition of the property.  The pre-purchase building inspection report identified some corrosion on the metal lugs and posts (which held the glass panel forming the balustrade which ultimately failed) and recommended rust proofing and repainting or replacing.  Importantly, this observation was not included in the “Issues” or “Safety Concerns” sections, but rather as general commentary as to the condition of the handrails / balustrade on the balcony.

The District Court Judge found that the home owners owed a duty of care to the plaintiff and breached that duty when they failed to address the corrosion and maintenance issues relating to the balustrade that were identified in the pre-purchase building inspection report, and by failing to restrict their guests from accessing the balcony.     

In allowing the appeal, the Court of Appeal found that the starting point for the inquiry into the duty of care was that it involved residential property.  The Court held that the purpose of the pre-purchase building inspection report was to bring to the attention of the home owners defects in the premises which they were intending to purchase and to put them on notice of likely or possible expenditure over and above the purchase price in the future.  Its purpose was not to place them on notice of possible dangers to their guests.

The Court of Appeal concluded that the Primary Judge’s formulation of the duty of care was unnecessarily narrow, and in effect, would have required the home owners to take steps to investigate and rectify all of the matters identified in the pre-purchase building inspection report in order for them to fulfil their duty of care.  The Court of Appeal formed the view that the Primary Judge incorrectly applied the concepts of duty and breach by focusing on the incident (and looking back on it retrospectively).  The Primary Judge should have looked at the report from the position of the home owners: having obtained a pre-purchase building inspection report with only a small number of recommendations identified as “Issues” or “Safety Concerns”, and no express recommendation concerning the handrails.  The Court of Appeal confirmed that a prospective view should be applied when identifying the existence and content of a duty as opposed to a retrospective one[1].

Conclusion

While the decision of the Court of Appeal was a good result for the home owner, this case highlights the need to give consideration to a pre-purchase building inspection report and the issues and comments made in it.  If the report is unclear as to whether further investigations or future work is required, it is important that the prospective purchaser take steps to have the author clarify their findings and recommendations.

The decision to not undertake general recommendations identified in a pre-purchase building inspection report should be taken with caution.  The format and wording of the pre-purchase building inspection report obtained by the home owners was critical to the Court of Appeal allowing the appeal.  In different circumstances, a Court might find that a pre-purchase building inspection report puts a home owner on notice of a defect and establishes a duty of care.

This article is not legal advice and is intended to provide a general guide to the subject matter.  Specialist advice should be sought about the circumstances specific to your situation.

Greg McAllister, Solicitor, Adrian O’Dea, Partner, in the Commercial Litigation and Dispute Resolution Team

 


[1] Vairy v Wyong Shire (2005) 223 CLR 422

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