17 Dec 2015

Building and Pest Clause

In every other State, bar New South Wales, we have conditional contracts. We put clauses in to make these conditional contracts. There are the normal ones like building and pest, and finance, but how detailed do they have to be or can we just put “Subject to Building and Pest?” This is probably not a good idea. In most States, the Real Estate Institute standard contracts have wording like – “Building and Pest to the buyer satisfaction.” Now, obviously that terminology becomes important because if you’re not reasonably happy with it, then you’re able to walk away. There were I guess in times past, agents who were quite canny with that, and tried to override it, and just put in “Subject to Building and Pest.” You can walk out if there’s any structural damage, or if there is evidence of active pest infestation activity. However, if you have a report that comes back, “No active pests, but riddled with prior activity.” You can’t get out of that contract using that clause. So, if you’re not careful, or canny, or experienced, you could just walk in, sign it and go, “Yeah, yeah, I’ve got a Building and Pest clause”, but it may not work for you at the end of the day. You need to be careful.

If you’re buying a residential property that has a pool, make sure you tell your lawyer, because now, in more States, pool fencing laws and regulations are becoming much stricter. Your lawyers then have an opportunity to look into that issue a lot closer before you go unconditional. If it’s got a big extension, tell your lawyer so they can do the searches on it to see if it has been approved and registered with the council. They don’t know to look for those things for you unless you tell them. These issues can become very relevant to you as the buyer as they introduce more risk. If the pool or the extension aren’t approved, then your insurance is at risk if someone has an accident. If it happens to be on a canal, please tell your lawyer because there’s so many illegal jetties, and water activity equipment. If you don’t tell them, they don’t know to protect you. Remember, your lawyer generally only gets paperwork coming to him, so how does he discern this piece of paper is different from this piece of paper? They generally don’t see the property.

If something to come back illegal, You have identified the risk and can manage it. The inspection report comes back, and it says, “The stump work is in very bad repair”, or “The pool fence is illegal”, or “The shed in the back yard hasn’t been approved.” You need to work with your advices to resolve the matter because:

  1. You can fix it. If you or your advisor know what it’s going to take to fix. You know what it’s going to cost. You’ve got the people that are going to manger the repairs, and You can fix it probably cheaper than most people can, and
  2. It gives me the opportunity to go back to the seller and say, “to renegotiate the price for the shed that isn’t approved, the bathroom’s full of rot, you’ve got an illegal pool fence and you’ve got a stump problem. It’s unsafe! The stumps have to be pulled down and restumped. It’s going to cost me at least $50,000.” (you have to had done your estimate and have it checked by your advisors) or provide quotes. You get back to the seller and say, “Look, we’ve got a problem here. I can pull out of the contract and you can sell it to somebody else, but that problem is going to remain. The next person that comes in is going to see exactly the same thing and you’re going to be in exactly the same situation. We’ve got two other options. You can fix it, and I’ll hold the contract, if you fix all of these things to my satisfaction. If you’re in a hurry, I’m happy to take it as is, but we’re going to have to do a little bit of adjustment to the price. We need to renegotiate a lower price to cover my out goings in doing the repairs.”

What I mean is, it is an opportunity to go back and renegotiate in your favour when those things are there. However, you need to know that’s the case to go back and renegotiate, accept it or not accept it. You may say, “Well no, I don’t want that property and all the hassles. I can’t fix it. I don’t know about that extension out there. I don’t know how deep the footings are, or I don’t know whether that’s acceptable, or not acceptable.” There are a whole lot of other issues there, where some building knowledge and once again, trusted advisors in the field, are necessary, so some things are not worth trying to fix, other things are.

The more you communicate with your solicitor up front, the more they know what types of searches need to be done before you actually settle on the property. If you don’t tell them that there’s a train line close by, well they may not do a rail search to know whether or not the train line is actually going to be moved and take up some of your property, and you’re going to have a reclaim situation which happened in Queensland quite recently actually. Communication is very important.