Builders Reports – Seller’s or Purchaser’s?
Jun 19, 2017
In a highly competitive housing market there are usually multiple buyers for the same property. We have heard of 50+ groups attending at open homes, and 20-30 tenders being submitted on certain properties.
A common feature of this kind of market is that a seller provides certain information to make it easier for purchasers to put forward offers without conditions. Often this will include a land information memorandum (LIM), a copy of the title, and a builders report.
The idea is a simple one, with so much competition a tender with conditions is unlikely to be accepted, and all of the parties will be chasing the same information anyway. After all how much sense does it make to get 20 LIMs on the same property, or 20 builders reports? A waste of money when they all say the same thing, right? Unfortunately, the answer is not always no - it depends.
In the case of the LIM, there is only one place to get one - the local council for that property. Similarly with the title, there is only one. But in the case of the builders report, it isn’t that simple and there are a few traps. The remainder of this article looks at those traps and what you can do to protect yourself.
The principal legal problem with relying on a seller-supplied building report is that you didn’t engage the builder to provide that report. This means that you don’t have a contract with the builder, and if the report is wrong, or misses something, then you don’t have any comeback on the builder because there is no contract. Here’s an example that we came across recently:
John and Jane (names changed) purchased a house at tender where the seller supplied a builders report. The house was in essence a leaky home. Rotten walls, windows, and frame. As you would expect, when John and Jane discovered all this (when replacing window hinges a month or two after settlement) they were beside themselves. They then got a building survey and learned that the repairs would cost hundreds of thousands of dollars, almost as much as what they paid for the house.
John and Jane didn’t have the money to fix it and had to sell. They lost all their equity, have nothing and still owe money to the bank which will take years to repay. All in all, a catastrophe. The builder who missed all this got away scot free - there was no contract and there was a disclaimer on the report (as most of them have) which clearly said that only the person who engaged the builder could rely on it.
There’s one more detail to note. The house wasn’t built in the “typical” leaky home era of 1991-2005. It was built in the 1940’s, from weatherboard and traditional materials. The house didn’t have much in the way of eaves, or flashings, and obviously no cavity wall design. The reason it didn’t fail for such a long time was because it was built (albeit using problematic techniques) from such good materials, lasting 70 years in spite of the leaking.
So what could Jane and John have done? There are a couple of things:
- They could have obtained their own builders report. This might have picked up on the issues, and would have given them an avenue of recovery in contract law.
- John and Jane could have asked that the seller’s report be ‘extended’ to include them. This would have involved paying the builder to have the report re-issued directly to them. Not all builders will do this, but most reputable ones will.
- They could have taken advice from an experienced specialist property lawyer before buying. Most people wouldn’t have thought a 1940’s property could be a leaky home nor have the same failings. Talking to someone with real depth of experience means getting advice that isn’t common knowledge.
The moral of the story is to take care. It’s easy to be drawn in to the temptation of saving yourself a few hundred dollars on getting a report. However in the context of one of the biggest purchases of your life, that probably isn’t the right strategy when it comes to risk. Wherever possible, get your own report - just in case.
If you would like further information or advice on these matters, please contact our Wellington property lawyers, Jamie Nunns on firstname.lastname@example.org or 04 495 8912, or Laura Blumenthal on email@example.com or 04 495 9944.