It has long been recommended that a purchaser has a property
inspected by a builder before they commit to a purchase. The
building report will often give a valuable insight into the
condition of the property so that the purchaser knows whether they
will need to set aside money for upcoming repairs or
It is now quite common for the vendor to obtain a building
report (instead of a prospective purchaser) prior to listing their
property. This gives the vendor a chance to complete any repairs
themselves as well as being able to provide a clean building report
which may give a nervous purchaser confidence that they're not
about to buy themselves a lemon.
This practice raises a couple of questions:
Can a purchaser rely on a report which has been obtained by the
Should a vendor be worried about liability for reports they
provide if the report failed to identify a potential problem e.g.
structural or weather tightness issues?
Often the first reaction of a purchaser is to want to make the
building inspection firm who provided the report liable for paying
the cost of fixing any problems not identified in the report.
Who is liable for an incorrectly prepared building report?
This depends! Who was the report was prepared for?
The default position is that a building report can only be
relied on by the person who commissioned it and to whom the report
is addressed. Building reports will usually contain specific
exclusions to prevent them being relied upon by others.
This will most likely prevent a purchaser being able to recover
costs from the author of a building report that was obtained by the
vendor. It may even mean that if a contract is signed in a
purchaser's personal name, but that person later decides to
nominate their company to complete the purchase, that purchasing
company may not be able to recover any loss, even if the
shareholders are the people who commissioned the building
What if you are the vendor who provided the report?
It is important to keep in mind that as a vendor you have
engaged a builder to carry out the report. As you're not a
building expert, you don't want to be accused of
misrepresentation if your builder gets their facts wrong.
This has happened in at least one court case where the vendor
provided a report as part of the pre-contract marketing
information. The building inspection firm "endorsed"
during the due diligence period and this endorsement was provided
to the purchaser by the vendor without any additional comment by
The building was later found to have weather tightness issues
and the purchasers were considered by the court to have grounds for
What can you do to protect yourself?
There are various safeguards and ways of protecting yourself
whether you are the vendor or the purchaser:
You should carefully assess the qualifications of the building
inspection firm employed to do the report, as well as the insurance
held by that firm to protect it from mistakes in reports;
Great care should be taken with all correspondence between the
vendor, the purchaser and their agents/solicitors to ensure the
building report is not misconstrued;
The timing of the incorporation of a purchasing company should
be managed, and it may be necessary to have the report readdressed
to the new company; and=
A cautious purchaser may wish to proceed on the basis that they
cannot totally rely on a report which has been obtained by the
vendor. If there is any cause for concern the purchaser may need to
obtain their own independent report.
If you are the vendor considering this issue at the time
marketing starts, or if you are the purchaser going through the due
diligence process, it can be critical to avoid the unexpected when
it comes to supplying or obtaining building reports.
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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Be aware that most modern subdivisions now include land covenants which are registered against the titles.
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