The importance of a building and pest inspection clause when purchasing a house

By Tracy Pratt, Lawyer at Hillhouse Legal Partners
| 5 min. read

Key takeaways

  • A building and pest inspection is crucial when purchasing a property to ensure, amongst other things, there are no readily identifiable issues including dampness, mould, structural damage, rotting timber and pests.
  • For a comparatively minimal cost, you will have peace of mind that your dream home should be free from obvious building and pest risks.
  • If extensive issues are discovered, you may be able to terminate the contract. However, under the standard Contract terms, the Buyer “must act honestly and reasonably”.

We have all heard of those horror stories where, after purchasing a property, a Buyer discovers their dream home is extensively damaged structurally, has water or mould issues or is riddled with pests such as termites resulting is significant repair costs, or worse, making it unliveable.  

This can be a catastrophic event for any Buyer and one which can be avoided.

A building and pest inspection is crucial when purchasing a property to ensure, amongst other issues, there are no readily identifiable issues such asdampness, mould, structural damage, rotting timber and pests. This provides the Buyer with some assurance the property should be in good condition.

Depending on the extent of any issues discovered, you may wish to negotiate to have the Seller make any necessary repairs prior to settlement or alternatively, request a reduction in the purchase price to enable you to make the repairs after settlement has been completed. 

There is no guarantee, however, that the Seller will make the necessary repairs prior to settlement. In this event, you will not be able to terminate the Contract, and we have found that the preferred option for a Buyer is to negotiate a reduction in the purchase price so that can in turn use that reduction in purchase price and apply it to repair costs not hope the seller attends to it and have to take legal action against them if they fail to do so.

If extensive issues are discovered, you may be able to terminate the contract. However, under the standard Contract terms, the Buyer “must act honestly and reasonably”.  The right to terminate typically will not arise for mere cosmetic issues, but rather issues that pose significant health and safety risks, signifincalty devalue the property or would result in signifincant expenditure for the buyer.

Examples of such issues include structural damage and termite infestation. You will not be able to terminate the Contract for minor issues such as a leaky tap and other usual fair wear and tear. 

If the Seller determines you are not acting reasonably, they may dispute your termination and withhold your deposit until such time as the matter can be resolved.

In addition to the above points, the Building and Pest Inspection clause places rights and strict obligations on both parties which the Buyer must be made aware of. For example, the Seller may terminate the Contract if notice of an unsatisfactory or satisfactory inspection is not given by the Buyer by 5pm on the inspection date.

It is also important that a buyer is aware of the limitations of the building and pest inspection. For example, the inspector may not be able to access the roof or floor cavities. The inspection will also typically not cover the operation of the electrical and plumbing fixtures or ascertain that they have been appropriate wired or plumbed in.

The building and pest condition also only covers physical defects with the property – not legal defects. So, for example, if a verandah has been built without Council approval, but it is free of physical defects, the Buyer cannot terminate under the building and pest inspection clause. There is also no other standard condition in the REIQ contract that would give the buyer a right of termination. A separate due diligence special condition is needed to give the Buyer a right of termination.

To ensure that you are protected and are fully aware of your obligations under the clause, please don’t hesitate to send us an email or call us on 07 3220 1144. We are here to help.

The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.