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Property: A matter of condition

Every Issue

Cite as: (2008) 82(4) LIJ, p. 84

The car body in the front yard, the broken air conditioner and the ramshackle fence give buyers cause for complaint, but each situation needs to be handled differently when it comes to a property settlement.

Disputes often arise in conveyancing transactions as the matter approaches settlement and the buyer is dissatisfied with the condition of the property. These disputes typically arise after the buyer has conducted the final inspection allowed by Condition 15[1] and discovered that the property is not in the condition expected, or that the vendor has not fulfilled a requirement of the contract. Three typical scenarios are complaints by the buyer that:

1. the vendor has not removed the ubiquitous car body proudly standing in the driveway or that departing tenants have left assorted furniture and rubbish on the property;

2. a window is broken or the air conditioner does not work; and

3. the vendor has not complied with a special condition requiring the vendor to replace a dilapidated fence or to ensure that all chattels and fixtures are in working order or, in the context of a new home, has completed landscaping or touch-up painting.

While these three scenarios sound similar the results are different, and careful analysis of the facts and the applicable law is necessary. General Condition 2.2[2] requires the vendor to deliver the property to the buyer at settlement in the condition that it was on the day of sale, with the important exclusion for fair wear and tear. In the first scenario, the property is in an identical condition to how it was on the day of sale. The car body held pride of place in the driveway when the buyer inspected, or the tenants were in possession in all their glory (including their sundry furniture and accoutrements). No doubt the buyer expected the car body to be removed or the tenants to clean up after themselves, but the contract only requires the property to be in the same condition, not a better condition. With hindsight, the buyer should have demanded a special condition that the car body be removed (but see scenario 3 in this regard).

Scenario 2 is also governed by General Condition 2.2, but the buyer will need to establish the threshold fact that the window was not broken at the time of contract or that the air conditioner was working at that time. The vendor may well argue that the window was broken last year or the air conditioner hasn’t worked for two years and the buyer bears the heavy burden of establishing that the property is not in the same condition that it was on the day of sale. Video evidence might be conclusive, but is all too rare. Relying on recollection, or worse, the evidence of an estate agent, is fraught with difficulties, but assuming that it can be established that the property is not in the same condition, what are the buyer’s rights? There is authority for the proposition that if the deterioration in the property is of sufficient significance the buyer may claim compensation by way of a deduction from the purchase price[3] or require the vendor to reinstate the property and refuse to settle until the vendor does so.[4] However, most deterioration, including a broken window or non-operative fixture, would not be of sufficient significance to justify deduction or non-settlement and the buyer would be left with the unsatisfactory remedy of having to sue the vendor for damages for breach of contract after settlement. The buyer is not entitled to unilaterally make a deduction from the purchase price in respect of such minor matters, although the parties might agree to such a deduction by way of compromise of the buyer’s right to sue after settlement.

The third scenario goes beyond General Condition 2.2 as the parties have specifically agreed that the vendor has an active duty in respect of the property, not just a duty to maintain it in the condition that it was. If the vendor fails to fulfil that duty, will the buyer be entitled to make a deduction from the price or refuse to settle? The buyer would argue that the mere fact that the parties have gone to the trouble of specifically agreeing to this condition shows that the condition must have been important to the parties and so the courts should enforce it. On the other hand, the vendor would argue that terms such as a requirement that chattels or fixtures be in an operative condition at settlement are not essential terms and that the buyer’s remedy should be limited to an action for damages after settlement.

It is suggested that it is unnecessary to introduce this new test of “essentiality” and that the test applied in scenario 2 in relation to the general condition should also be applied in relation to any special condition. Buyers ought to be able to enforce their rights, either by way of deduction or delay, if the breach relates to a matter that is of sufficient significance in the context of the transaction. If the matter is not of sufficient significance the buyer will be required to settle and pursue its rights against the vendor after settlement. This objective test will require subjective application and in relation to any particular case it will all be a matter of degree.

RUSSELL COCKS is the author of 101 Conveyancing Answers.

[1] Condition 15 of Table A of the 7th. Schedule of the Transfer of Land Act which is typical incorporated into the copyright contract by General Condition 9.

[2] General Condition 2.2 of the copyright contract of sale.

[3] King v Poggioli (1922) 32 C.L.R. 222.

[4] Casey v Thomson Nominees P/L (1984) V Conv R 54-156.


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