News

15 February 2019

A home buyer’s nightmare – property inspections failing to find fault

A buyer is awarded only $500.00 for a building inspection report that missed extensive termite damage.

Building and pest inspection conditions are incredibly common in property contracts these days.  When purchasing a house or unit, it is always recommended that you engage a qualified inspector to look over the property for problems.  Building and pest inspection conditions generally allow a buyer to terminate the contract if significant problems are discovered with the buildings or improvements.

But what happens when major issues are not picked up in the building and pest inspection?

A recent decision of the Victorian Civil and Administrative Tribunal (“VCAT”) highlights the importance of reading the ‘fine print’ in building and pest inspection reports if you are purchasing a property.

Garrett v Elim House Pty Ltd [2018] VCAT 1862

The Garretts purchased a 100 year old timber house in 2014, for $172,000.00.  As part of the conveyancing process they engaged Elim House Pty Ltd (“Elim”) to conduct a pre-purchase inspection of the property.

After receiving the report, they decided to go ahead with the purchase.  Shortly after the sale was finalised, the Garretts discovered that there were significant structural issues with the house, including extensive termite damage.  Following the discovery of these issues, it was suggested by their builder that the house was beyond repair and should just be demolished and they should start fresh with the building.

The Garretts commenced proceedings in VCAT against Elim, claiming (among other things) that:

  1. the representations on Elim’s website, which they relied on when selecting Elim to inspect the property, were misleading and deceptive; and
  2. the inspector failed to inspect the property with due care and skill as required by the Australian Consumer Law.

Elim’s website marketed their services as thorough and technologically advanced as well as gave the impression that hidden problems would be found.  However, the report that was produced by Elim limited the scope of the inspection to a visual inspection only.  A visual inspection is standard for pre-purchase building inspections completed as part of the conveyancing process.

The report also specifically excluded some areas of the property from inspection because they could not be accessed.  This included the sub-floor where the majority of the damage was later found.  The property was tenanted at the time of the inspection and furniture obstructed some of the view of the property, particularly areas of the internal perimeter wall.  Termite damage was also later found to have been present in these areas.

Elim had noted in its report that it was ‘reasonable’ to discern that there was termite activity in some parts of the property that were not able to be inspected.  Elim also had advised the Garretts of the problems with the floors of the property, advising them that parts of the floor were ‘soft underfoot’ and would need attention in any renovation work.

Decision

VCAT found that:

  1. some of the representations made on Elim’s website were misleading, including the representation that Elim’s inspections were especially thorough and utilised high-level technology; and
  2. Elim conducted the inspection of the property with due care and skill, as the reason the termites were not identified was because of the stated restrictions to the inspection noted in the report and the structural issues were appropriately identified.

The tribunal ordered that the Garretts be refunded the $500.00 they paid Elim for the property inspection because of the misleading representations on Elim’s website.

However, the Garretts were not successful in their claim of $344,528.00 to cover the cost to them of demolishing the house and building a new home on the land.

What does this mean for buyers?

This decision highlights the importance of reviewing a pre-purchase inspection report thoroughly and, properly considering the limitations contained in the report.  It is very common for areas of a property to be excluded from building and pest inspection reports due to inaccessibility.  It is also important for purchasers to realise that a visual inspection (which is the type of inspection that is done as part of the building and pest inspection conditions in Queensland conveyancing contracts) may not identify all issues with the property.

Some problems, such as termite damage can only be identified through an invasive inspection.  This type of inspection is unlikely to be allowed by a seller as it may, by its nature, cause damage to the property.

Prospective buyers should carefully consider the contents of a pre-purchase inspection report and the weight of any recommendations made by the inspector, along with factors such as the age and relative condition of the house.  A great way to get more information is to attend the inspection with the building inspector or speak to them following the inspection to ask them questions.

If there are items in the report that you do not understand the nature of or the consequences attaching to, seek advice.  As learnt from this decision, building and pest inspection reports are not infallible and the limitations contained in these reports reduce the scope and liability of an inspector.

An experienced lawyer or conveyancer can help you to limit the risks involved in purchasing a property and deal with issues that arise from a pre-purchase inspection.

Miller Harris Lawyers would be happy to assist you with the purchase of your next property, please feel free to contact our conveyancing team on 07 0436 9700.

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