It's common for a person looking to buy a property to enter
into an agreement as "Jane Smith or nominee." In fact,
nomination is so common, it is now an automatic part of standard
form sale and purchase agreements. The next step is for the buyer
to get a building report, and, if that gives the property the
all-clear, the buyer might form a trust or company to be the
ultimate purchaser of the property.
At that point, the buyer could lose all rights to claim against
the building inspector if the inspection is wrong, as was the case
in a recent High Court decision, Body Corporate 90315 v Redican
Jessica Patchett entered into a sale and purchase agreement for
an apartment in Wellington in the name "Jessica Patchett or
nominee." She engaged a building company to do an inspection,
and confirmed acceptance of the company's terms and conditions.
Ms Patchett then went unconditional on the purchase, formed a
company four weeks later, and the company settled the property
purchase and became the owner of the apartment. Subsequently, it
was discovered that the apartment building leaked.
Because the person receiving the building report (ie, Jessica
Patchett) was different from the entity that ended up actually
buying the property (ie, her company), the High Court held that
there was no contractual link between the parties. As her company
itself didn't contract to buy the report, it couldn't claim
against the building inspection company. Because Ms Patchett
didn't buy the property personally, she didn't suffer loss
directly and also couldn't claim against the building
So what could be done to have had a better claim against the
building inspector in a nominee situation:
Enter into the contract with the building inspection company
"as agent for a company to be formed" or "as agent
for a trust to be formed."
Most terms of engagement for building inspection companies will
include a disclaimer where the company doesn't accept liability
to third parties. Amend that disclaimer so that the building
inspection company acknowledges that a company or trust (as
applicable) will be buying the property "in reliance on the
As soon as the company or trust is set up, make sure it
"ratifies" (ie, formally adopts) the engagement of the
building inspection company, and gives notice of this to the
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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