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Mono clad homes and the building report condition – the vendors dilemmas.

643873_mThere are many fine, problem-free mono clad homes. Unfortunately amongst the leaky homes the majority of them are mono clad. When it comes time to sell vendors of mono clad homes face a market very much alert to the leaky homes potential. Not only for mono clad homes, but particularly for them, vendors can expect purchasers to include a builder’s report condition in any offer they make. With that knowledge vendors need to be prepared.

Years ago building approval conditions in contracts for the sale of land meant little more than a purchaser’s builder friend having a casual walk-through and a verbal report. Now there are specialist building report companies who provide comprehensive and rigorous services. Purchasers will be receiving detailed reports including by way of example quite sophisticated internal non-invasive wall moisture readings.

This blog addresses two dilemmas that vendors face.

Pre-empting issues with your own builder’s report

First, to what extent should a vendor seek to pre-empt a potentially adverse report by having their own report done? This approach has the benefit of avoiding unpleasant surprises. Once the vendor has had a contract fall over for a bad building report they are badly placed when it comes to trying to find a new purchaser. Real estate agents under their rules are obliged to disclose the existence of an adverse report to prospective purchasers. As a vendor you have contractual and Fair Trading Act obligations to disclose and consequences for nondisclosure. If you are comfortable that your property is sound then a supporting report can give you confidence going to the market. If it discloses problems then you have the opportunity of carrying out remedial work so that when a purchaser commissions a building report a clean bill of health can be expected.   By prior arrangement with your building inspector it may be possible to indicate through your real estate agent that the report can be readdressed to the purchaser for a reduced fee. From a purchaser’s perspective that has the benefit of a reduced overall cost of purchase and from your perspective you can be confident of condition satisfaction.

Inconsistencies between building report providers

The second dilemma is that it is the experience of some real estate agents that some building report providers are more likely than others to provide adverse reports. Our own experience also indicates that the level of adverse reports can differ between report providers.

The standard contract form provides that purchasers can be required to provide copies of building reports relied on for non-satisfaction of building report conditions. From a vendor’s perspective this can be of limited value. Although it may help identify problems that need remediating it doesn’t assist where the report is in error. Building reports invariably limit the liability of the building report provider to the party obtaining the report, namely the purchaser and include other limitations of liability.

Negotiating terms of building report before proceeding

How can a vendor head this off? There is limited opportunity. The purchaser is free to use whoever they like.

That said at the time the contract is signed the vendor is free to negotiate so that the terms of the building report condition are acceptable to the vendor . That might include a provision that before any building report provider is entitled to access the property the vendor may first require the provision of an indemnity from the report provider. It would record and acknowledge that the report provider will be responsible to and indemnify the vendor for any loss that may arise from any error in the report that has been relied on by the purchaser as a ground for non-satisfaction of the building report condition. Most building report providers will be strongly opposed to providing the vendor with such an indemnity.

Nevertheless, the ability of the vendors to waive that requirement in the case of an acceptable building report could be very helpful. It provides a mechanism for vendors to avoid the consequences of building reports being prepared in respect of their property by a report provider they have no confidence in. This is a legitimate stance as adverse reports whatever their source can have a legacy effect on value and saleability that carryover when the property goes back on the market following non-satisfaction of the condition.

We have acted for many vendors of leaky homes and potentially leaky homes and are happy to advise on the special wording required for contract provisions.