Building and Pest Conditions – what do I need to look out for?

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A building and pest special condition is a very common condition in contracts for a house, unit or commercial property. Particularly if the property or unit is not brand new.

Buyer’s invariably like to check that the building is structurally sound and has no hidden, and potentially costly, issues. But what happens if the buyer is not happy with the reports? What can I/they do? This is the big question for sellers and buyers.

Importantly – if the buyer isn’t happy with the reports, it’s not all over red rover!

When is the building and pest condition due?

The building and pest condition date is a critical date. This means that the buyer’s solicitor must notify the seller’s solicitor by 5pm on this date, whether or not the buyer is happy with the reports.

If the buyer’s solicitor does not notify in time, the seller will have a right to terminate.

The condition is usually due 7, 14 or 21 days after the Contract Date.

Who can help me get a building and pest report?

Talk to the Agent. They will have contacts for builders they have recommended in the past and can point you in the right direction.

The buyer can organise access to the property through the sales agent.

When should I organise my building and pest inspection?

The buyer should organise the building and pest inspection as soon as possible. The inspector will need time to do an inspection and then draft up a report to send to the buyer.

What does the buyer have to tell the seller?

Once the buyer has reviewed the building and pest reports and decides whether or not they are happy with them, they will need to instruct their solicitor to notify the seller’s solicitor that they:

  1. Satisfy the condition. This means that the buyer is happy with the results.
  2. Waive the condition. This means that the buyer hasn’t got the report but are happy to proceed anyway. Or they have got the reports and regardless of the findings, the buyer wants to proceed with the purchase.
  3. Terminate the contract on the basis that the buyer isn’t happy with the findings of the report.

Can buyer’s negotiate a price reduction or ask the seller to fix issues?

Yes. Often buyers are not 100% satisfied with the building and pest reports but don’t want to terminate.

Instead of notifying the seller that they satisfy, waive or terminate under the condition, the buyer may:

  1. Ask for a price reduction so that the buyer can do work after settlement to fix the issues. Or
  2. Ask for the seller to fix issues either –
    • prior to settlement or
    • prior to the Building and pest due date (or any extended due date).

Can the buyer ask for an extension to the building and pest due date?

Yes they can. Sometimes buyers will want more time to arrange a building pest inspection.

More often than not, a buyer will ask for an extension to give the seller time to fix up any issues prior to the buyer satisfying or waiving the building and pest condition.

What happens if the buyer terminates the contract under the building and pest conditions?

If the buyer is not happy with the building and pest inspection reports, they may terminate the contract. However, the buyer must act reasonably in terminating.

We would recommend to buyers to try and negotiate for a price reduction or for the seller to do the work first. However, depending on the seriousness of the building and pest issues, the buyer’s may just want to get out.

If a buyer’s wish to terminate the contract, they must provide their solicitor with a copy of the building and pest reports. If the seller requests a copy of the reports, the buyer must provide them without delay. The buyer often has an obligation to take reasonable steps to obtain the building and pest inspection reports. If the buyer cannot produce the reports to the seller, the seller may not accept that the termination is reasonable.

Where does the deposit go if the contract is terminated under the building and pest conditions?

Regardless of which party terminates under the building and pest conditions, as long as the termination is lawful, the deposit will be refunded to the buyer.

Contact our Property team if you have any concerns regarding building and pest conditions or if you have any other property concerns.

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