Residential Property Purchase Building or Builders Report.

Many people buy and sell houses and apartments but how many use a builders report before they sign the deal? If you do use a Residential Property Purchase Report, is this safe and are you getting this done properly? This week PrQCL-MEDIA-SHOOT_final-jonoperty Lawyer and Queen City Law Associate John Jon investigates the importance of Residential Property Purchase Building or Builders Reports.

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To read more articles written by John click here. To find out more about John Jon click here.

If you do have issues or doubts about a property transaction please don’t hesitate to get in touch with our Property Law team.

With an ever growing number of people purchasing properties in New Zealand, it is important that you understand

(1) why you are including the building report condition;

(2) what do you mean by the building report condition;

(3) what do you need to do.

This blog is to provide general information concerning the building report condition contained in the 9th edition of ADLS agreement for sale and purchase of real estate. The particular clause is recorded in clause 9.3 of this agreement. When this clause was drafted, the key objectives and principles were:

– The building reports must be determined objectively.

– These reports are “building reports” and not “builder’s reports” – indicating that this must be done by a building specialist or consultant on the building.

– The objective test will again apply for the standard of the purchaser’s satisfaction.

– The obtained reports must be done in good faith by a “suitably qualified building inspector”.

– The inspectors or experts are to use “acceptable principles and methods” and in 2005 the New Zealand Standard prepared a standard for inspections.

– Reasonable access must be provided as per the clause.

– The purchasers or the inspectors are not permitted to undertake any invasive testing without written permission from the owners.

– The Vendor may request a copy of the report if the purchaser determines that the report is unsatisfactory and confirmed that the condition is not satisfied.buidreport

Once the contract has been signed with this building report condition, the purchaser must
immediately engage the inspectors or experts and commence the due diligence investigation.

A non-exhaustive list of possible building specialists or experts can be found as follows:

New Zealand Institute of Building Surveyors – www.buildingsurveyors.co.nz;

Royal Institute of Chartered Surveyors– www.rics.org;

The Association of consulting engineers New Zealand Inc – http://www.acenz.org.nz;

Building Officers Institute of New Zealand – www.boinz.org.nz;

As per clause 9.8 of the agreement, the purchaser must “do all things which may reasonably be necessary to enable the condition to be fulfilled by the date of fulfilment.” The purchaser cannot use this clause as some form of exit strategy without satisfying the objectives and principles underpinning this clause. Based on recent case law and also based on the principles behind this clause, the keys points are:

– the purchaser must appoint a building inspector who is suitable for the type of building;

– the purchaser must identify what type of reports are required – geo-technical, moisture reading, invasive testing etc;

– the purchaser has ten (10) working days (unless this has been varied by the parties);

– the report assessment is done by way of “objective” standard and this cannot be subjective;

– the purchaser cannot use their friends or friendly chippies to do this report – the inspector or expert must use “acceptable principles and methods”

– the building inspection must be obtained unless the purchaser is intending to waive this condition (which we would not recommend). The purchaser cannot cancel the contract due to non-satisfaction unless there is proper building inspection report supporting the purchaser’s position;

– the purchaser must check the building inspector’s background (e.g. qualifications, professional liability insurance and disclaimer issues) before appointing them as their inspectors or experts;

The lawyers acting for the purchaser can (and in most cases, should):

– provide the purchaser with all necessary guidance;

– properly explain to the purchaser with the key elements behind this building inspection condition – this is to ensure the purchaser follows the principles and requirements of
clause 9.3;

– provide any legal advice concerning the appointment of suitable building inspector;

– point the client to the right direction when the report is issued and the lawyers can also
explain what the purchaser should be doing to ensure they are on the right track. The
lawyers (in most cases) cannot give any expert advice on the technical issues raised in
the report.

Therefore, the purchaser should seek further expert advice, if such action is required or recommended by the inspector or expert. Therefore, you (as the purchaser) should seek legal advice before signing any contract. Once the contract has been signed, you should seek advice concerning the objectives and principles behind each relevant conditions before proceeding with the due diligence investigation. “Doing nothing” is not an option and there may well be limited options available if you attempt to seek legal advice a day before the condition due date.

If you need a lawyer for a property transaction please contact us.