No real estate agent wants to see a deal they’ve worked hard to secure break down due to an unsatisfactory pest or building report. But did you know that a buyer must act reasonably when deciding whether to terminate a contract based on the pest and building report? Attwood Marshall Lawyers Property and Commercial Lawyer Aimee Turner recaps a buyer’s responsibility and gives agents some tips for securing their commission.
Summary
Being upfront to a potential buyer about the property’s age, faults or pest problems has its payoffs. If a buyer knows of these issues and later tries to terminate a contract based on those grounds, the seller could claim they have acted unreasonably.
And if a potential buyer has acted unreasonably in their attempt to terminate, a seller may insist on specific performance, securing the agent’s commission in the process.
Agents should be aware of this legal requirement on a buyer to act reasonably and what exactly is considered “reasonable.” Sellers should also understand the clauses that could allow them to argue a buyer acted unreasonable.
An agent’s role: communication is key
A buyer’s responsibility to act reasonably can usually be found in the terms and conditions of a sales contract.
Each sale contract should have special conditions because every property is different with potentially its own issues, as are the buyer’s and seller’s circumstances. The contract may be subject to the sale of the buyer’s property, for example, or a body corporate records search, or repairs or maintenance works.
Standard terms will also feature in just about any sales contract. These include a finance clause, and a clause relating to pest and building inspections.
Buyers usually conduct their own personal inspection at a property viewing before signing on the dotted line. This would be the opportunity to point out any faults you predict could lead to problems later or a buyer getting cold feet.
For most properties going to auction, the agent will usually hand out the building and pest inspection report that the seller has commissioned during the marketing period. But buyers will often also obtain their own building and pest inspection report from an independent inspection company for absolute peace of mind ahead of auction day. An agent should not discourage a potential buyer from getting another opinion.
Expert inspections
A professional building inspection can reveal structural issues that will likely need costly repairs or major construction work. It can also spot drainage and plumbing issues, termites, and other pest problems.
Most inspections will look at the building’s exterior, the spaces in the roof or under the floor, the garage and garden sheds, any separate laundries or toilets, non-structural retaining walls and steps, fencing, paths and driveways.
A building and pest inspection won’t just indicate major flaws with a property, but usually the inspector will provide a complete list of defects and issues, including minor issues such as leaking taps, cracked or chipped tiles, lose or squeaky door hinges, minor pest presence, just to name a few.
Although important to be aware of, these are certainly not deal breakers that should be relied on by a buyer to then terminate a contract.
In addition to a building inspection report, buyers and sellers can also request other reports that go into more specialised detail, some of which set out cost estimates for fixing major problems and recommend where work should be prioritised. These include special-purpose property reports, pest inspection reports, pre-sale (vendor) building reports, pre-purchase electrical inspections, loose-fill asbestos insulation tests, and swimming pool safety certificates.
Sellers too, should consider obtaining pest and building inspections before putting their property up for sale. The results would flag issues and prompt them to carry out maintenance where necessary, boosting the property’s value in the process and mitigating the risk of disputes arising over such issues.
Upholding standards and acting in best interest of all parties
Communicating inspection findings with both the sellers and buyers means all parties are aware of the property’s faults. If that awareness can be proved, a buyer will face serious difficulty trying to renege on a deal based on those same faults down the track.
Besides the potential legal risks associated with inadequate disclosure or a failure to act in the client’s best interests, real estate agents would do well to think about the benefits they can glean from acting ethically when guiding individuals through any inspection and termination process.
Fostering a trusted relationship with a potential client is always a good idea. Not only does it make the purchasing process smoother, but the buyer or seller can also become a future source of more work, whether by returning themselves for another matter or passing word-of-mouth recommendations to their friends and family.
What happens if a buyer unreasonably terminates the contract?
Deciding what is ‘reasonable’ means having regard to factors such as the age of the property, the severity of the building and/or pest issues and whether these issues were visible or obvious when the contract was entered. The costs of repairs may also be a deciding factor.
If a buyer does terminate a contract because of the building and pest conditions, and the seller asks the buyer for a copy of the inspection reports, the buyer must provide a copy to the seller without delay.
If it’s considered that the buyer’s basis of termination is unreasonable, then there are various circumstances of what could follow. For example, the seller may have the right to take legal action against the buyer for specific performance, which would force the buyer to continue with the contract.
The seller could also seek damages if they can prove they suffered financial harm as a result of the buyer’s unreasonable termination. Alternatively, the buyer and seller may, depending on the circumstances, negotiate a mutually agreeable resolution permitting the buyer to terminate the contract.
Attwood Marshall Lawyers – ensuring best practice and helping buyers and sellers have confidence in their property transactions
Buying a property is one of the biggest investments any individual can make in their lifetime. Several key decisions must be made in the lead up to purchase, and as their real estate agent, you are in an ideal position to help them enter a deal with certainty and peace of mind. One of the ways you can do that is referring them to a specialised property and commercial legal team.
Our property and commercial lawyers can help your clients review the building and pest inspection reports and offer pre-signing advice on all contracts. Our team will thoroughly review the terms and conditions with them and ensure they reflect their best interests and meet their expectations, while also ensuring buyers understand their obligations under a contract.
To avoid risk or unnecessary delays to settlement, please contact our Property and Commercial Department Manager, Jess Kimpton, on direct line 07 5506 8214, mobile 0432 857 300, or email jkimpton@attwoodmarshall.com.au
