When you find the house of your dreams, it’s tempting to buy it on the spot. But don't rush in. Most property purchase contracts have a building and pest clause – and for good reason.
It’s not just 'fine print'. You need to understand these clauses so you don’t end up with a property infested with pests or in a terrible condition. Michael Sloan, from The Successful Investor, explains some of the key things to know about building and pest conditions.
What are building and pest conditions?
A building and pest clause should exist as a condition of the sale when you buy a home. The clause allows you to get written reports from qualified building and pest inspectors about the property.
Building and pest reports can identify a number of issues about the property. These range from minor problems like a leaking tap to serious issues such as termite infestation or structural damage.
A correctly-worded building and pest clause may give you the right to withdraw from the contract if the report isn’t satisfactory.
Don’t get caught out – read between the lines
Beware: not all problems with the property will give you the right to end the contract. Let’s look at some examples – good and bad – of building and pest conditions. As you’ll see, how the clause is worded, and the nature of any problems found in an inspection, will determine if you can pull out of the sale.
Building inspection conditions
- ‘The contract is conditional upon the buyer(s) obtaining at their expense a written report from an independent registered builder or qualified structural engineer, certifying that the dwelling on the property is structurally sound within 14 days of acceptance of this contract. If the report discloses that the dwelling is not structurally sound, the buyer(s) may at the buyer’s option, terminate this contract by written notice, supported by a copy of the report, to the vendor within 24 hours of receipt of the report…’
The wording, ‘structurally sound’ should ring alarm bells. It means that you must buy the property unless it has major structural defects. Most properties are structurally sound, but may still have significant problems such as rusted gutters, rotten windows, broken plumbing and other costly repairs.
Running your contract past a solicitor or conveyancer before you sign is extremely important. They act in your favour and will ensure the conditions are worded in a way that protects your interests. A better example of a building condition is:
- ‘The contract is conditional upon the purchaser(s) obtaining at their expense a Building Inspection Report accepted as satisfactory by them within 14 days of acceptance of this contract. If the report is not to the purchaser’s satisfaction, the purchaser(s) may at their option, terminate this contract by written notice, supported by a copy of the report, to the vendor’s agent prior to date of 14 days from acceptance.’
If the inspection report comes back with defects, the 'accepted as satisfactory' bit gives you greater control over whether you have to proceed with the purchase of the property.
Pest inspection conditions
Example of a poorly-written contract
‘This contract is conditional upon a Termite Clearance Certificate being obtained at the expense of the purchaser from a recognised and reputable pest control company, certifying that the buildings are free from termite activity as at the date of inspection, and stating also whether there is damage occasioned by previous activity.
Should the certificate disclose infestation or damage and should the vendors be unable or unwilling to remedy or rectify such infestation or damage, the purchaser may at any time prior to ten days from the date fixed for settlement, by notice in writing terminate this contract…’
Why it's bad
This condition could put you at risk. The get-out clause, ‘the vendor is unable or unwilling to remedy the infestation, means that even if the property is full of termites you’d still be bound to buy it (provided the seller said they’d fix the problem).
Example of a well-written contract
You don’t want to find yourself forced to buy a property with pest damage because you got caught out. As with the building conditions, it’s important to have your solicitor or conveyancer check the wording of the contract before you sign. They’ll ensure the contract is written in a way that affords you greater protection. It may read more like this:
- ‘This contract is conditional upon a Pest Inspection Report being obtained at the expense of the purchaser and accepted as satisfactory by them within 14 days of acceptance of this contract. If the report is not to their satisfaction, the purchaser(s) may (at their option) terminate this contract by written notice, supported by a copy of the report, to the vendors agent prior to the date of 14 days from acceptance.'
The key phrase here is ‘if the report is not to their satisfaction’. This allows you to pull out of the contract if the pest inspection comes back with some problems.
Finally, the buyer must act reasonably
You must act reasonably when entering into any building and pest negotiations with the seller. Even if your solicitor has read over the contract before you signed, don’t assume that the mere mention of a minor defect in the report will allow you to pull out of the contract. The seller has the right to dispute your attempt to pull out of the contract.
Make sure you understand all the conditions of your offer when you buy a property. Don’t wait to find out until it’s too late.
Ready to purchase your home? Apply online for conditional approval today.
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The information in this article has been written by Michael Sloan from The Successful Investor. While Mr Sloan has been careful to ensure the information is correct and accurate, Mr Sloan’s views are his own and do not necessarily represent those of National Australia Bank Limited ABN 12 004 044 937, AFSL and Australian Credit Licence 230686 (NAB). This information should not be relied upon as financial product advice as none of the information provided takes into account your personal objectives, financial situation or needs. NAB recommends seek the counsel of an independent financial advisor before making any investment decision.