Building And Pest Inspection Clause in Queensland Conveyancing Contracts. What Should You Worry About?

When an estate agent introduces a client to a solicitor, the building inspection might not be done yet, or the seller might be fixing identified issues. This can leave the agent wondering: will the transaction go smoothly and will the client be happy? And in general, how often do issues arise due to building inspections, which can complicate the deal?

At GM Law, with over 100,000 transactions under our belt, we have some insights.

1. Is building inspection mandatory in Queensland?

The short answer is NO, however, most lawyers acting for a buyer will recommend that they conduct a building inspection, and if circumstances don’t allow for a condition to be included in the contract a lawyer will generally advise a buyer to conduct a building and pest inspection prior to going to contract. GM lawyers will always take into account the personal circumstances of their client prior to giving any advice on this issue.

2. What happens if a buyer finds some issues during a building inspection?

If a contract is negotiated with the standard REIQ or ADL building inspection condition, a buyer will have a right to terminate the contract provided they act reasonably. This is an objective test.

3. How often do issues related to building inspection arise in the GM Law practice?

It is very common for buyers to attempt to negotiate for a seller to fix items that are highlighted in a building or pest report, or alternatively seek a reduction in price. Whilst strictly speaking a buyer doesn’t usually have any legal right under the standard conditions to do this, often the buyers and the sellers cooperate to achieve a satisfactory outcome so that the contract can proceed.

4. How likely is the settlement to fail if the building inspection reveals issues that can’t be fixed within a few weeks?

Contracts can fall over if the building inspection reveals defects that the buyer was unaware of, but usually, this happens only if the issues are quite serious. Often parties are able to negotiate through these issues.

5. What is the advantage of ordering a building inspection from the seller part?

It is becoming more common these days for sellers to arrange building and pest inspections at the point of listing the property. This in our view is a good practice since it can enable you to resolve any potential issues that might arise in the contract stage. Be very careful though, if you intend giving this report to the buyer because if there is anything misleading in the report or it fails to address significant issues, and the buyer relies on this report in entering the contract, this may well expose the selling agent and the seller to a legal claim.

6. How does building and pest inspection work?

Just in case, it makes sense to discuss how the building and pest inspection process works.

1. Engagement of Inspectors: The buyer engages licensed building and pest inspectors who meet Queensland’s legal requirements under the Queensland Building and Construction Commission (QBCC) Act.
2. Inspection Scheduling: The inspection is arranged, often within the cooling-off period of the contract, ensuring it is conducted promptly.
3. Building Inspection: Evaluates structural soundness, safety concerns, and compliance with building codes.
4. Pest Inspection: Assesses for termites, borers, and other pest-related damage.
5. Documentation and Reporting: Inspectors provide a detailed report highlighting findings, potential risks, and recommendations. This report adheres to Australian Standards.
6. Review and Decision-Making: The buyer reviews the report and if the buyer is not satisfied with the report, they may elect to terminate the contract, provided that they have negotiated a standard QLD contract subject to a building inspection. Generally, that is the buyers only right, however often buyers may attempt to negotiate with the seller to either reduce the purchase price or attend to some repairs. The seller of course has no obligation to engage in negotiations but often negotiates in order to enable the contract to proceed.

7. How does building and pest inspection in Queensland differ from the rest of Australia?

1. Inspections common: Solicitors encourage buyers to carry out a building inspection as part of the conveyancing process, and if advice is sort from a solicitor before the contract is signed, they will usually recommend that a contract be negotiated to include a building inspection clause.
2. Binding Contract Clauses: Many Queensland property contracts include a specific “Building and Pest Condition,” allowing the buyer to terminate the contract if significant issues are identified.
3. Stringent Licensing Requirements: Inspectors in Queensland must comply with QBCC regulations, ensuring high standards of professionalism.
4. Focus on Termites: Due to Queensland’s warm climate, pest inspections often prioritize termite damage, a major concern in the state.
5. Cooling-Off Period: Even if a contract is negotiated that is not subject to a building inspection, the buyer will have a five-day cooling-off period in which to terminate the contract. So, it is recommended that they take advantage of this cooling-off period to terminate if they suspect there are issues with the property. You should note though that the seller is under no obligation to allow a building inspection, in circumstances where the necessary clause has been included in the contract.

8. At whose expense is the building and pest inspection carried out?

The buyer typically bears the cost of the building and pest inspection in Queensland. This arrangement ensures the buyer’s independent assessment of the property without conflict of interest. But there are several scenarios when a seller also can carry out the Building And Pest Inspection:

1. Pre-Sale Inspections: If the seller opts for a pre-sale inspection to attract buyers, they cover the cost.
2. Contractual Agreements: The seller may agree to pay for the inspection during negotiations, particularly if requested by the buyer to resolve concerns.
3. Seller’s Remediation Initiatives: If the seller commissions an inspection to address potential issues before listing the property, they bear the cost.

If the buyer has already carried out an inspection, the seller is not obligated to compensate for its cost, unless this is provided for in the contract.

9. In what cases do the results of the building and pest inspection allow you to terminate the contract?

1. Significant Structural Defects: Issues compromising the safety or habitability of the property.
2. Pest Infestations: Active termite infestation or damage requiring extensive remediation.
3. Non-Compliance: Property breaches local building regulations or zoning laws.

Example 1. Foundation problem:

The inspection revealed that the property’s foundation was significantly compromised due to subsidence, with visible cracks in the walls and uneven flooring. Repairs were estimated to cost over $50,000, making the property unsafe and not worth the investment. Using the standard “Building and Pest Condition” in the contract, the buyer terminated the agreement by presenting the inspection report within the stipulated timeframe.

Example 2. Active Termite Infestation:

In Cairns, a buyer discovered during a pest inspection that the property had an active termite infestation in the roof trusses and wooden flooring. The damage was extensive, requiring immediate treatment and structural repairs. The buyer determined that the cost of remediation would far exceed their budget and invoked the termination clause under the contract. The buyer provided the seller with the inspection report as evidence and terminated the purchase.

Example 3. Non-Compliance with Building Regulations:

A Gold Coast buyer’s inspection revealed that a rear deck extension on the property was not council-approved and did not comply with Queensland’s building regulations. The inspector highlighted that the extension posed safety risks, and the buyer would be liable for rectifying the issue post-settlement. Since the defect was not disclosed by the seller and constituted a major compliance breach, the buyer terminated the contract under the inspection clause, citing the substantial future costs and liability concerns.

10. What are the negotiation scenarios in case of identified problems?

If the damage does not result in the termination of the contract, here are some scenarios that the seller and buyer can follow:

1. Renegotiation: Negotiate for repairs before settlement. Request a price reduction to cover repair costs.
2. Request for Repairs: Buyer and seller agree on specific repairs to be completed before settlement.
3. Conditional Acceptance: Agree to purchase with defects, provided future repairs or compensation are arranged.
4. Termination of Contract: The buyer invokes the building and pest clause to terminate the agreement.
5. Seller’s Rectification: The seller may offer to resolve issues to avoid losing the sale.
6. Insurance Claim: The seller may use insurance to cover certain repair costs before transfer.

11. Does GM Law have experience in resolving disputes related to building and pest Inspection?

In GM Law’s experience, often a building or pest inspector will raise issues in the report, which would give rise to a right to terminate by the buyer. In these circumstances, if GM law is acting for a buyer, they will bring to their client’s attention the option of either negotiating a price reduction or alternatively formalising an arrangement requiring the seller to attend repairs. Often a buyer will choose one of these options rather than terminate. The seller is of course under no obligation in most cases to agree to the buyers’ request, but often they will agree in order to prevent the contract from falling over.