New Builders' Report Condition

The new 9th edition of the Agreement for Sale and Purchase has been released by the Auckland District Law Society Inc. in conjunction with the Real Estate Institute of New Zealand (REINZ).

While most of the changes revolve around how the property transaction is conducted by lawyers, there is one significant addition to the agreement which both buyers and sellers need to consider carefully when signing agreements. This addition is the inclusion of a standard Building Report condition.

If a buyer indicates on the front of the agreement that they require a building report, there is now a standard condition in clause 9.3 that covers the buyer and sellers obligations. In summary, the condition sets out the following requirements:

  • A buyer has 10 working days in which to obtain a builders report
  • The report must be done by a “suitably qualified building inspector in good faith and in accordance with accepted principals and methods”
  • A seller (subject to any tenants rights) must allow the inspector access to the property to carry out the inspection.
  • An inspector is not permitted to carry out any invasive testing without first getting permission from the seller.
  • The buyer must be satisfied with the report on the basis of an objective assessment.
  • If the buyer cancels the agreement because of their non-satisfaction with the report, the buyer must immediately provide a copy of the report to the seller, if asked.

The agreement does not define what a “suitably qualified” inspector is. This is so the class of building inspectors is not limited; it is simply intended to ensure that the inspector has the qualifications, expertise and experience to carry out the inspection. A person who is experienced in inspecting residential dwellings may not be qualified to inspect a commercial building.

One thing is certain, however: a buyer cannot simply rely on “ a mate who knows a thing or two about building” to give the property “the quick once-over”. If you want a building report, you will have to use someone qualified to do it, and get a proper report prepared. Buyers will need to choose their inspectors carefully if they do not want the seller to challenge the report or the inspector’s credentials at a later stage. There will be a cost for getting this report, just as there is if you want a valuation or a LIM report. That is a fact that buyers need to accept.

Sellers, too, will have to co-operate and allow inspectors into the property to carry out the inspection. If a seller didn’t allow access, then you run the risk of the buyer cancelling the contract because the report could not be obtained within the specified period.

Buyers have to be objective in their assessment of the report. Obviously, a buyer will have had a good look over the property and its condition when considering whether or not to buy it. Therefore, if the report makes mention of some maintenance that might need doing on the property, which would have been readily visible when the buyer looked the property, you could not use that as a reason for saying the report is not satisfactory. As a buyer, you would have seen the condition of the property, and were prepared to make an offer based on that condition. To then use that as a reason to not approve the building report would not be seen as an “objective assessment” under clause 9.3.

Sellers, too, have to make some decisions. If the agreement is cancelled, do you want to see the report? Once you have the report, you then have knowledge of a potential defect or problem with your property. Do you now need to disclose that to any future buyers, and what effect might it have on the value of your property?

Of course, it is possible for a buyer and seller to agree to include a separate building report condition in the agreement which will override the new standard provision; however, that can also have its pitfalls for the parties, if not drafted correctly.

We would recommend that you talk to us about what the best option for your agreement is before you sign the agreement; that way, you may be able to avoid any nasty surprises, or at least be aware of what might occur if you proceed with the agreement. Once the agreement is signed, it’s too late to go back and change it.