Buyer Beware

Property Purchaser’s responsibility to make inquiries

The High Court has confirmed, in a recent decision called Johnson & Ors v Auckland Council, that purchasers have a responsibility to make their own enquiries prior to buying a property.

In this case, the Johnsons had purchased a residential property at a mortgagee sale by tender. They were described as “experienced owners of valuable property” and that they were well aware that the property may have had weather-tightness issues due to it having monolithic cladding, and visible moisture damage. The house had been extensively renovated by the previous owners and a code compliance certificate (“CCC”) had been issued by Council.

After the purchase it was discovered that the house was in fact leaky and the Johnsons brought a claim against the Council for $1.925 million in damages arguing that a CCC should not have been issued for work which was defective, and that the Council was negligent for doing so. It had also been discovered that the extent of work carried out on the house was far in excess of what had been covered by the CCC.

The Council admitted that it had been negligent in issuing the CCC for the defective work but countered that the Johnsons had to take some responsibility as they had contributed to their loss by not obtaining a builder’s report prior to the purchase or making any other enquiries as to the weather-tightness of the house. It was stated that if the Johnsons had checked the Council records they would have noticed the discrepancy between the alterations done to the house and the scope of work covered by the CCC. In addition, the Vendor had deleted the standard warranties in the Agreement for Sale and Purchase, which should have alerted the Johnsons to the potential for a problem with the house.

The Johnsons argued that they should have been able to rely on the CCC and not have to conduct any further investigation. They also said that due to the nature of the mortgagee sale, they only had a limited time frame in which to submit an offer. However the Court rejected this argument finding that the Johnsons were “authors of their own misfortune”. Despite the tight time frames, the Court held that the Johnsons should have at least had an inspector carry out a non-invasive inspection of the property that would have revealed the weather-tightness issues. Ultimately, the damages recoverable from the Council were reduced by 70% due to the Johnson’s contributory negligence.

Points from this decision

  • It is not enough to just rely on a Code Compliance Certificate issued by a Council. The scope of work that it is issued for needs to be investigated.
  • The general public now has knowledge of the leaky building problem and this has put purchasers on notice that any potential weather-tightness issues needs to be investigated prior to a purchase agreement becoming unconditional.
  • It is prudent to obtain a pre-purchase building inspection report so that any potential issues are highlighted from the outset.
  • Ultimately, purchasers must accept responsibility for their decisions to purchase. However, they can protect themselves to a considerable degree if they obtain professional assistance prior to any purchase agreement becoming unconditional.