If the Building and Pest Inspection shows issues with the property, can I terminate the contract?

When entering into a residential property contract in Queensland, one of the most important conditions for buyers is the Building and Pest Condition.

A Building and Pest Condition allows a buyer to investigate the condition of the property before becoming unconditionally bound to proceed with the purchase.

A common question we receive is:

“If the Building and Pest Inspection identifies issues with the property, can I terminate the contract?”

The answer depends on the terms of the contract, the findings contained in the reports and whether the buyer is acting reasonably.

What is a Building and Pest Condition?

Under the standard REIQ Contract, the contract is conditional upon the buyer obtaining a written Building Report and Pest Report by a licensed Building and Pest Company (which may be a single report) on the property by the due date on terms satisfactory to the buyer, acting reasonably.

The condition allows the buyer to assess whether the property is suitable and identify any defects, damage or concerns that may not have been apparent before signing the contract.

The buyer must take all reasonable steps to obtain the reports and must provide notice to the seller by the due date confirming whether:

• the Building and Pest Condition has been satisfied or waived; or
• satisfactory reports have not been obtained and the buyer wishes to terminate the contract.

Can a Buyer Terminate if Property Defects or Issues Are Found?

Potentially, yes.

If the Building and Pest reports identify issues with the property that are not satisfactory to the buyer, the buyer may have the right to terminate the contract.

However, the buyer must act reasonably when making this decision.

A common misconception is that only major structural defects or significant termite damage will allow a buyer to terminate. This is not necessarily the case.

The REIQ Contract does not require defects to meet a particular threshold before a buyer can be dissatisfied with the reports. Whether a buyer is acting reasonably will depend on the circumstances, including the nature of the issues identified and the contents of the reports.

What Issues Are Commonly Identified?

Building and Pest Reports commonly identify issues such as:

• termite activity or damage;
• structural cracking or movement;
• water ingress;
• roof defects;
• drainage concerns; and
• general maintenance issues.

The seriousness of these issues will vary depending on the age, condition and circumstances of each property.

Can the Buyer and Seller Negotiate?

Yes.

A Building and Pest Inspection does not always result in the contract being terminated.

Depending on the issues identified, the parties may negotiate an outcome, such as:

• the seller completing repairs before settlement;
• a reduction in the purchase price;
• a contribution towards repairs; or
• another agreement between the parties.

A negotiated outcome may allow the transaction to continue while addressing the buyer’s concerns.

What Does This Mean for Sellers?

For sellers, receiving a Building and Pest Report identifying issues does not automatically mean the contract will terminate, however they may need to sacrifice a bit of time and money in attending to items required by the buyer, or providing a price reduction instead

Sellers should consider the nature of the issues identified and whether a negotiated outcome can be reached with the buyer.

If the buyer terminates the contract and the seller requests a copy of the Building and Pest Reports, the buyer must provide those reports without delay to provide the issues brought up by the buyer and a seller is able to dispute the termination if they believe the buyer is not acting reasonably

Timing is Important

The Building and Pest Condition is subject to strict timeframes.

If the buyer does not provide notice by 5:00pm on the due date, the seller may have the right to terminate the contract, however the deposit will be refunded to the buyer

Accordingly, buyers should arrange their inspections early and seek advice promptly if issues are identified.

Seeking Legal Advice

Whether you are buying or selling residential property in Queensland, it is important to understand how the Building and Pest Condition applies to your particular contract.

Obtaining legal advice can help you understand your rights and obligations, avoid costly mistakes and ensure you make informed decisions throughout the conveyancing process.

If you have questions about a Building and Pest Condition, or any other condition or aspect of a Queensland residential property contract or process, please do not hesitate to contact the property team at FC Lawyers.