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 Allwood Ltd.
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 inspection company.
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 report."
- 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 inspection company.
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.