Building reports - some legal issues [March 2010]

A recent case I was involved in raised the issue of building reports and I thought it would be useful to make some comments and observations about the importance of obtaining building reports.

It is obvious that there is a substantial number of homes built around New Zealand that have weathertightness issues. Consequently, it is recommended that a building report be obtained from an appropriately qualified inspector when you purchase a property, especially if it has been built in the last 20 years. That is not to say that older properties should not have a building report because issues other than weathertightness might arise. Weathertightness of buildings built during the last 20 years has created and still creates significant problems. The outcome of a major report on weathertightness issues, commissioned by the Government, has yet to be disclosed.

When buying a house it is wise to ask the real estate agent or your lawyer to recommend appropriate wording for a building report condition in your sale and purchase agreement. There are standard clauses for building report conditions available and when introduced, the new REINZ Agreement for Sale and Purchase will have a building report condition in as a standard term.

Selecting an appropriately qualified inspector is very important as well. They will need to check on many aspects of the house of which weathertightness is just one. The foundations, the electricals, the state of the roof are only a few of the myriad of aspects that needs to be looked at with the house.

There are a number of associations of inspectors and it is worth looking at websites for various New Zealand associations of building inspectors to select an inspector appropriate for your needs. You may only want to have one particular aspect looked at and chose a specialist in that area. For weathertightness there are certain groups, organisations or companies that specialise in this area of work.

The next issue is what you do when you have the report. If there is no analysis, are you sufficiently confident of your own abilities to analyse and draw conclusions from the report? Your lawyer may not necessarily have that expertise (many lawyers do not have the necessary qualifications to analyse a report) but he/she may be able to recommend somebody who can analyse the report for you. Alternatively you could get the inspector to provide the appropriate level of analysis and recommendations so that you can make your own decision about what steps to take with the report.

Most reports will have a summary at the end and recommendations. You and your lawyer can then take those recommendations and act on them. If the report raises issues it might mean simply withdrawing from the contract on the grounds that you are not satisfied with the report or the state of the house. It may also enable you to negotiate a reduction in price or that the vendor will have to carry out certain remedial works. All these possibilities depend on the wording of the condition that you have inserted in the agreement.

The principle of "caveat emptor "(buyer beware) is still alive and well. This means there is an element of purchaser responsibility in buying a property. In saying that, the new Code of Conduct under the Real Estate Agents Act requires agents to disclose any defects known to them, but that can fall well short of issues which a proper inspection might disclose. Anything that is raised in a building report will be relevant. A building report condition will enable the purchaser to negotiate with the vendor if the report discloses "problems" with the property.

In conclusion, it is wise to consider putting a building report condition in your contract. Talk to your lawyer about who might do the report or look at the websites to help you select the most appropriate inspector for your purposes. Ensure the report gives you an analysis and recommendations or get a second opinion . Get an analysis from someone who understands these reports if you are not comfortable carrying out the analysis yourself.

Finally, discuss the report recommendations with your lawyer and how you might deal with that in terms of your agreement. If the clause in the agreement is properly worded it should give you ample scope to either cancel the contract, get the work rectified or get yourself a price reduction. At the end of the day, that is far better than going into the deal blind. In this housing environment, a building report is a very valuable insurance.

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