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    What to Do When Structural Defects Are Identified During a Property Purchase

    12 May, 2016 | 2,461 views

    Caution is recommended when structural defects are identified in a building inspection report and the standard REIWA building inspection clause has been utilised in a West Australian Property Offer and Acceptance Contract.

    While not common, occasionally structural defects are identified when a building inspection is conducted. What buyers and agents do next is critical.

    When a building inspection identifies a structural defect in a property, it will often be a surprise to both the vendor and the buyer. It is important that the stakeholders have a clear understanding of the structural defect and how it can be resolved.

    Structural defects can range from relatively inexpensive issues which can be resolved for less than $1,000 through to significant structural defects, with remedial action costing tens of thousands of dollars.

    In amongst the emotion of a real estate transaction, it is important that stakeholders have clarity on exactly what they are dealing with and what they need to do to protect their positions. Identifying potential problem areas can be a challenge in the case of existing structures, so an inspection by a licensed building inspector is imperative.

    REIWA Building Inspection Clause

    In a recent presentation to the Australian Institute of Conveyancers WA Division, Matthew Ellis from MGB Legal, raised some very important issues in relation to several key components of the standard REIWA Building Inspection Clause.

    Importantly, when a purchaser receives a building inspection report identifying that a property has a structural defect there are some very key requirements:

    • The buyer and seller must receive the written report proving an assessment of structural defects before the date specified in the Contract.
    • The report must have been prepared by a Consultant who has appropriate qualifications and experience.
    • The report must have been prepared in accordance with the correct Australian Standard.
    • Where the report identifies structural defects the buyer may at any time within three (3) business days after the date, serve a Structural Defects Notice on the Seller giving the Seller five (5) business days to agree to remedy the structural defects.

    Structural Defects: Considerations for Buyers and Agents

    The above requirements open up a whole range of issues which agents and buyers need to carefully consider, ensuring that the buyer’s contractual entitlements are preserved.

    1. A building inspection is generally one of the last items to be dealt with prior to progressing toward settlement and is often not progressed until finance is approved. On many occasions, less than 5 days are allowed to book a building inspector, gain access to the house (potentially a challenge when a reluctant tenant is involved), conduct the inspection, produce the report, distribute it to the purchaser who must then provide a copy to the seller. Unless all of this is undertaken prior to the due date, the buyers rights will effectively fall away, potentially committing the buyer to purchasing a structurally defective home. Time is of the essence and sufficient time must be allowed. Reports must be provided to the seller prior to the due date.
    2. Make sure your building inspector who prepares the report has the appropriate experience and qualifications so as to ensure that the buyer’s rights are preserved.
    3. Similarly make sure your building inspector prepares a report consistent with the right Australian Standard to once again ensure that the buyers rights are preserved. The REIWA Clause refers specifically to AS4349.
    4. If required, ensure that the buyer serves a Structural Defects Notice on the Seller by the due date.

    As indicated, unless the very specific requirements identified above are followed, buyers’ expectations on their entitlements may not be fulfilled.

    The above is not intended to be legal advice, and agents and buyers should seek professional, legal and or settlement agent advice when dealing with these issues.

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