Why Get A Building Report Report Before Purchasing A Property?

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fiona taylor lawyerWhy do you need a building report? The property may look perfect to you, you may have a family member or friend who knows a bit about building and they’ve had a look, BUT, what about the state of the foundations, what about that slightly damp odour in the back bedroom, is the roof as good as it might look?

As a purchaser, you need to understand what a building report can provide to you and make a judgement on whether you need to include a condition in your contract to cover this.

What can go wrong without one?
The possibilities are endless – the discovery of an incorrectly fitted gas heater, a hot water cylinder on its last legs, the first time it rains you find out where the roof drains to, how about the bath tap that actually falls off when you try to turn it on? Sounds extreme? These are all issues we have seen and had to try to deal with after settlement – and all of which would have shown up in a builder’s report.

What is a building report?
A building report is a document usually prepared by a “suitably qualified builder” and you must use this suitably qualified person if you wish to make any claim against a vendor for work you want to have remedied, or to be able to use the information to cancel the contract. Just getting your dad to say “the front steps are unsafe” is not sufficient.

What’s included?
It will depend on the company providing the report but some of the items that may be reviewed include:

• Moisture testing (particularly important if you suspect the property may be a “leaky building”)
• Foundations
• Roof and attic/roof space
• Subfloor/Basement
• Spouting and drainpipes
• Windows and exterior cladding
• Wall linings
• Floors
• Kitchen and Bathroom fixtures
• Tiling
• Electrical
• Plumbing
• Water systems
• Overall structural condition
• Areas that need repair
• Water heaters /Gas units
• Retaining walls & Fences
• Driveways and exterior paving
• Decks
• Water tanks and septic systems
• Other buildings on the property (garages/carports etc)
• Insect and pest infestation
• (visible) insulation

The building inspector cannot conduct any invasive testing (i.e. removing of floorboards/wall linings etc) without specific consent from the vendor.

What is a building report clause?
The standard agreement for Sale & Purchase used in New Zealand allows potential property purchasers to choose to make their offer to buy conditional on a satisfactory building report.
Our article What You Need To Know About The Standard Building Report Clause covers the standard builder’s report clause in the Agreement for Sale and Purchase.

However, we are often finding different clauses added in to agreements which give the purchaser the right to request a vendor to repair or remedy “issues” or to negotiate a reduction in the price.

When should I get a building report?
If you are buying at auction, you will need to get the building report before auction day as the purchase at auction is deemed to be unconditional. 

If you are making an offer on a property other than at auction, you should make the offer conditional on a builder’s report or a due diligence investigation

If the offer is accepted, you should start arranging a time for the building inspection straight away. You will need to liaise with the real estate agent and vendor to arrange a suitable time, the inspector will need time to conduct the physical inspection and prepare the written report. You will then need time to review the report and discuss it with your property lawyer if required.

How do I organise a building report?
There are many companies who specialise in providing building reports. You will need to liaise with the real estate agent and the vendor of the property you wish to purchase to arrange a suitable time for your builder to inspect the property. The vendor must give you reasonable access to allow the inspection. When scheduling the building inspection you should bear in mind the time that it will take the builder to prepare the written report after the inspection, whether or not you want your lawyer to review the building report, and how long you want to read and review the report after it is received. (These timeframes should also be taken into consideration when setting the “building report” condition in any agreement – the standard in the Agreement for Sale and Purchase is ten working days.)

What happens if there is a problem identified in the building report?
If the report identifies a problem, you have the following options:

• If you are relying on the standard clauses in an Agreement for Sale and Purchase, you may cancel the agreement – the vendor may request a copy of the building report which you would be obliged to provide.

• If you have additional wording in the agreement, allowing negotiation or discussion with the vendor, then you may ask for certain items to be repaired prior to settlement, or request a reduction in the purchase price to allow you to attend to the repairs after settlement.

• You may choose to continue with the purchase regardless of the problems, but with knowledge of the defects.

Whatever option you choose, you need to communicate with your lawyer as soon as possible.

Purchasing property is a significant investment, and building issues can be hard for a lay person to identify. A building inspection gives you peace of mind and certainty about what you are buying and can save you money in the long run.

Do you want peace of mind about a property you are considering buying? For more information regarding buying and selling residential property or for specific advice regarding building report clauses, contact New Zealand property law expert, Fiona Taylor to discuss a Pre Auction Due Diligence Check or to get started with a conditional offer on a property.

Fiona Taylor
Email: Fiona.taylor@smithpartners.co.nz
Phone: 09 837 6845
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