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Property: Buyer beware

Every Issue

Cite as: (2007) 81(7) LIJ, p. 91

A vendor’s failure to comply with statutory obligations is not grounds for a purchaser to avoid a contract.

Various statutory requirements impose duties on home owners and those engaged in the business of building homes, and failure to comply can result in the imposition of penalties.

However, the existence of those legal obligations and sanctions for breach do not normally affect the relationship between vendor and purchaser.

That a vendor has not complied with a statutory obligation, or has in fact breached such an obligation, remains a matter between the vendor and the statutory authority.

The breach does not give a purchaser any right to insist on the vendor fulfilling that statutory duty.

A vendor might be obliged to put only recyclable material in the green bin but regularly uses that bin for non-recyclable rubbish. This may make the vendor a social pariah at the local kindergarten and expose the vendor to a penalty, but it does not affect the relationship between the vendor and purchaser should a contract of sale be entered into.

Likewise, the failure by the vendor to comply with statutory duties relating to pool fencing or installation of smoke alarms is a matter exposing the vendor to sanction, but does not give the purchaser the right to insist on the vendor complying with those obligations during the course of the contract and before settlement.

The purchaser would only have such a right in one of two situations:

  • if a statute provides that failure by the vendor to comply with the statutory duty entitles the purchaser to avoid – as is the case with s11 of the Sale of Land Act 1962 in respect of failure to have adequate body corporate insurance; or
  • if a notice has been served in relation to the breach requiring the vendor to remedy the breach. Condition 15 of Table A gives the purchaser the right to insist that the vendor comply with such notices prior to settlement. However, this right only applies in relation to notices served pre-contract, and any notice served post-contract burdens the purchaser.

The obligation for a home owner to have an occupancy certificate or certificate of final inspection in relation to building works performed on the property arises from ss39 and 38 of the Building Act 1993.

The objective is to ensure that works on properties achieve a certain standard of completion and safety and the failure to obtain a certificate on completion of works may result in a statutory penalty and, for participants in the building industry, may lead to loss of registration.

However, the absence of a certificate does not undermine the vendor’s ability to sell the property or give a purchaser any right to insist that a vendor obtain a certificate before settlement.

The one exception is in the case of a new home or apartment purchased off-the-plan.

In such circumstances it is possible to argue that, on the basis of the contractual obligation to deliver vacant possession, a purchaser is entitled to expect that the purchaser will have the legal right to occupy the premises and that the vendor is thereby obliged to obtain a certificate to that effect.

This argument respects the fundamental principle of privity of contract.

Similar arguments apply in relation to builder warranty insurance certificates.

Registered domestic builders are obliged to have warranty insurance. But no law requires a vendor to provide the certificate of insurance, either before contract, in response to an inquiry during the contract, or at settlement.

The purchaser does have a right to request a certificate from the insurer (whoever that might be) but only after the purchaser becomes the owner.

Owner-builders who sell might have an obligation to obtain insurance and disclose particulars of it in the vendor statement, but that is as a result of a specific obligation in s32(1A) of the Sale of Land Act and failure to do so gives the purchaser a statutory right to avoid.

This obligation only applies to owner-builders and has no application where the warranty insurance was issued to a registered builder.

Failure to have adequate pool fencing, working smoke alarms, certificates relating to occupancy, certificates relating to warranty insurance and indeed the fact that properties might have fill, be liable to flooding or contain asbestos are merely defects in quality.

In the absence of specific statutory intervention, such defects fall within the principle of caveat emptor (buyer beware) and are the purchaser’s problem.

RUSSELL COCKS is the author of 1001 Conveyancing Answers.


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