What does “subject to Building and Pest Inspection” mean?

Building and Pest Inspections identify any defects within a property and the risks that may evolve from those defects. They are useful for identifying the condition of the property, which provide insight on the desirability and value of the property being purchased. 

Why should I include a “subject to a Building and Pest Inspection” clause? 

The Building and Pest Inspection clause protects the purchaser in the event major structural defects and/or major pest infestations are identified. The purchaser may exercise their right under the clause to: 

  1.  Withdraw from the contract, and  
  2. Request refund of any deposits paid  

This does not apply if defects or pest infestations are minor in nature. The report issued by your registered building practitioner will identify the extent of any defects.

If you are buying an existing property, an inspection may reveal a long list of defects due to the age of the property. For Off-the-Plan or ‘New Home’ properties, an inspection can reveal any defective building works and if the land is prone to infestations.

There are major defects found, but not major structural defects. What do I do? 

Not all major defects are equivalent to major structural defects.  

Major structural defects are significant damages to the foundation or framework of a building. These can also mean that the property may be in unliveable condition. If a registered building practitioner indicates any major structural defects in the property in the written report, this is sufficient evidence to terminate the contract

If you have already signed the contract with “subject to Building Report and Pest Inspection” you cannot terminate the contract based on major defects alone. Additionally, the Vendor is not obligated to rectify any major/minor defects uncovered.  

If you have arranged a pre-purchase inspection, the Building and Pest Inspection report can assist in negotiating the contract price or specific contract terms before signing. For example, you may negotiate a special condition that the Vendor rectifies the major defects by the completion date/settlement date.  

Is the Building and Pest Inspection clause common? 

In VIC, it is common practice for purchasers to include a subject to Building and Pest Inspection clause are are found in most Contract of Sale documents.  

In contrast, the standard practice in NSW, SA, QLD, and TAS is to arrange pre-purchase inspections. You may need to negotiate a Building and Pest Inspection clause if you are unable to conduct a pre-purchase inspection. Pre-settlement building and pest inspections clauses have recently become more common in SA property contracts. These often include a satisfaction date of a week prior to the settlement date.  

Refer to our article here for more other common contractual conditions.

If you require assistance in understanding your building and pest inspection report, give us a call today at +61 3 9590 6180, or email us at hello@wlegalgroup.com.au

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