Jun 262015

Imagine moving into your newly purchased property only to discover a few months later that your dream home has a devastating termite infestation.  What can you do about it?

It might shock potential property purchasers to know that vendors do not have a positive obligation to point out quality defects if that defect is apparent from an inspection of the property.

What is a quality defect?

Quality defects include termite infestations, structural issues, noise issues, town planning restrictions and heritage listing.

Buyer beware unless the vendor is actively deceitful

Vendors do not have to tell you everything. So far as defects in quality are concerned, the rule still is caveat emptor – buyer beware. The onus is on purchasers to satisfy themselves as to the state of the property. It is not the vendor’s responsibility to disclose a property’s every imperfection, even if the quality defect is hidden from view.

What can you do?

The effect of the caveat emptor principle is that you won’t be entitled to terminate the Contract if you discover a quality defect. However, if a vendor:

  • made an express or implied warranty that the property was of a certain quality, but the warranty turned out not to be true; or
  • deliberately concealed defects that would otherwise be discoverable by inspection;

this may amount to contractual fraud or misrepresentation, or misleading or deceptive conduct under the Australian Consumer Law.

Quality defects cases

  • In Anderson v Daniels, Mr and Mrs Daniels had an investment property with severe cracking problems. Right before advertising it for sale, they had a plasterer repair the cracks on the internal walls. The Andersons went to inspect the property, and asked about the cracks on the external walls. The Daniels told them that all brick houses have cracks. The Andersons commented that there were no cracks on the inside walls, and Mr Daniels said that was because no children had lived in the house. Once the Andersons bought and moved in, more cracks appeared and they were able to successfully sue the Daniels because their active concealment of the cracking amounted to a positive statement that there were was none.
  • In Wood v Balfour, The Balfours had been treating their home for termite damage for years when they decided to sell. After the new owners, the Woods, moved in, they discovered extensive structural damage. The Woods successfully sued their pest inspection company, who should have picked up the problem. They then tried to sue the Balfours, arguing they had done replastering to cover the damage. On appeal, the judge said that to be successful, the purchaser would have to prove that elements beyond just knowledge and non-disclosure were present. Although Mr Balfour did repair some cosmetic damage caused by the termites, he was not aware of the substantial damage done by the termites and was therefore not dishonest.
  • Real estate agents, as well as vendors have responsibilities too: In Hinton v Commissioner for Fair Trading, purchasers bought a home that was the scene of a recent triple homicide. The real estate agent, Mr Hinton, deliberately chose not to disclose this fact, which was very likely to negatively affect the price a purchaser would pay. This was found to be ‘misleading or deceptive conduct’ under the Fair Trading Act as well as a breach of the Real Estate Agents’ Rules of Conduct.

How can I protect myself?

  1. Inspect the property yourself, as many times as possible. If you haven’t done this, you have almost no chance of success in a claim against the vendor.
  2. Obtain pest and building inspections. If possible, try to attend the property with the inspector.
  3. Ask your lawyer about obtaining a building certificate and survey from the Local Council, and a Planning Certificate if one is not attached to the Contract.
  4. Ask a lot of questions about the property and make notes. Cases on quality defects require you to prove that the vendor knew more than he or she let on, so the more questions you ask, the easier it will be to prove a vendor has been actively deceitful.