Limitations of Pre-Purchase Inspection Reports

Limitations of Pre-Purchase Inspection Report

A recent VCAT decision[1] highlights the significant limitations and implications of purchasing a property based on the findings of a pre-purchase inspection report.

The Facts

1. 1.      The property was a 100-year-old timber house;
2. 2.      Prior to the property being purchased and at the time of sale, the property was tenanted and heavily furnished;
3. 3.      The applicant engaged a registered builder to carry out an inspection of the property and prepare a pre-purchase inspection report;
4. 4.      A pre-purchase inspection was undertaken prior to the applicant signing a Contract of Sale, at a cost of $500.00;
5. 5.      The pre-purchase report was provided by the registered builder to the applicant and the applicant proceeded with the purchase of the property for $172,000.00;
6. 6.      Settlement was completed in September 2014; and
7. 7.      After completion, termites were found on the Property and the applicant sought expert advice by another builder who concluded that the property was only fit for demolition, not repair.

The Applicant Purchaser’s Position

The applicant sought to claim loss and damages of $344,528.00 from the respondent registered builder for misleading and deceptive conduct, being the costs for demolition of the property and re-construction. The applicant relied on the following:

1. 1.      The pre-purchase report provided by the respondent was misleading and failed to disclose termites and other major structural issues;
2. 2.      The respondent’s website was misleading and the registered builder was personally liable of the misleading statements on the website;
3. 3.      The inspection done was not carried out with due care and skill, in accordance with s60 of the Australian Consumer Law.

The Website

The respondent’s website contended:

1. 1.      To “Roadworthy the property before you buy it”;
2. 2.      The use of high-level technology to access restricted areas of a property;
3. 3.      Conducting high quality inspections;
4. 4.      Producing quality pre-purchase reports; and
5. 5.      Being better than their competitors.

The Report

The pre-purchase report provided by the respondent to the applicant stated that the inspection carried out was a visual inspection only due to limited accessibility to the perimeters of the rooms and the entire premise due to it being tenanted and heavily furnished.

Decision

The Tribunal found that:

1.      The respondent’s website was misleading and deceptive in contravention of s 18 of the Australian Consumer Law but that a reasonable person would not have relied on the website in acquiring a property;

2.      The respondent’s report was not misleading or deceptive as the scope of the report was limited; and

3.      The applicant had not taken reasonable measures prior to purchasing the property.

The applicant was awarded compensation for the cost of the pre-purchase report ($500.00). The Tribunal did not award any damages in relation to demolition and construction costs for the property.

The take out message from this case is that purchasers should do their own due diligence and make their own enquiries prior to entering into a Contract of Sale. They should be aware of the disclaimers set out in these reports and accept the limitations.

The property team at Burke Lawyers is well equipped to assist in pre-contractual reviews and advice and assist in the due diligence process.

Please contact our Property & Burke Lawyers Development Team

[1] Garrett V Elim House Pty Ltd (Building and Property) {2018} VCAT 1862