Pre-Purchase Building Inspections Matt Huckerby Partner Moray & Agnew. Sydney Melbourne Brisbane Canberra Newcastle

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Beverley Riley
6 years ago
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1 Pre-Purchase Building Inspections Matt Huckerby Partner Moray & Agnew

2 Objectives Understand your potential exposure in preparing prepurchase building reports under contract and tort law. Understand: the person/s to whom duty is owed; the basis of that obligation; the scope and content of the duty; and the consequences of breaching the duty. Consider best practice for complying with duties of care owed in tort and/or under contract.

3 Basic Contract Law What is a contract? A contract is nothing more than a promise, or set of promises, which the law will enforce. The idea of enforcement is central to the notion of contract. Promises which constitute contracts are such because they will be enforced. There are in effect three elements: Offer Acceptance Consideration

4 What is an offer? Nothing tricky here. An offer is the offer of a promise which when accepted constitutes an agreement. I promise, if you will in return make a certain promise or do a certain act. The contract does not have to be in writing. Offers, and contracts in general, are frequently oral. Likewise they can be partly oral and partly in writing.

5 Acceptance The act of assenting to an offer. Acceptance of an offer to create a contract must be made while the offer is still open by the offeree who must know of the offer. The acceptance must match the offer that was actually made. The acceptance must either be communicated to the offeror or the requisite act must be done.

6 Consideration This concept is central to contract law in Australia. The essence of consideration is that only promises which have been purchased given rise to binding contracts. If Karen promises to give Ben $100 the promise is not enforceable because Ben has not purchased the promise, either by promising to do something himself or by conferring a benefit on Karen or by suffering some detriment. Karen s promise becomes enforceable (ie supported by consideration) if Ben, in return, promises to mow Karen s lawn once a week for the next four weeks.

7 Privity of Contract The concept of privity of contract has two aspects: only the parties to a contract may be subjected to burdens, and only the parties to a contract are entitled to enforce its provisions. Obviously, it would be unfair for A and B to enter into a contract thereby creating some burden on C, without C s consent.

8 Enforcement It is basic that a promise, once made, should be kept. Wherever possible the courts give decisions which encourage the performance of contracts.

9 Breach of Contract Australian law has taken a very strict approach with regard to what constitutes a breach. Every failure to discharge a contractual obligation is a breach of contract unless the failure is so minor is to be without significance.

10 Compensation The compensation principle states that the person wronged should recover no more then he or she has lost because of the breach. The compensation principle asserts that the remedy for the breach should compensate the person wronged rather than penalise the wrongdoer. The overarching approach is to put the person wronged in the same position they would have been in save for the breach.

11 Tort A tort is an old French word meaning a wrong. A tort is a civil wrong for which the innocent party is entitled to claim damages (ie. money). A person who has by their negligence caused harm to another person has committed a tort. The injured party (the plaintiff) may sue for compensation or damages.

12 The 3 elements of a tort A duty of care. A duty to take reasonable care owed at the time of the act of negligence by the defendant to the plaintiff. A breach of that duty by the defendant. The defendant failed to confirm to the required standard of care. Damage to the plaintiff from the breach of the duty which is not too remote.

13 To whom do you owe a duty of care? Donoghue v Stevenson 1932 AC 562 In short you owe a duty of care to persons, or classes of persons, whom you can reasonably foresee will be affected by your actions. The above situation has largely been subsumed by the Civil Liability Act 2002 (NSW), however, the general approach is the same. Voli v- Inglewood Shire Council (1963) 110 CLR 74 His duty of care extended to persons who would come there to use it in the ordinary way : per Windeyer J.

14 The Action In short, it is clear that building and pest inspectors owe a tortious duty to those who it may reasonably be anticipated rely on their reports. In practice, most plaintiffs will bring their action both for breach of contract (if possible) and in tort. A claim will also frequently be made based on the various Consumer Protection Laws available under statute.

15 Content of the duty? Whether it be in contract or tort, an Inspector will owe a plaintiff a duty to exercise the skill of a reasonably competent building consultant in carrying out a visual inspection in accordance with Australian Standard Whilst not determinative (as the Courts remain the ultimate arbiter), compliance with best industry practice will place you in the best possible position to defend any such claim.

16 Content of the duty? It is an implied term of all pre-purchase inspection contracts that both the inspection and the report must be completed with due care and skill: see for example Brown v Dream Homes SA Pty Ltd [2008]. This is now enshrined in section 60 of the Australian Consumer Law. Thus, a failure to act with due care and skill will be a breach of contract. In the event that this breach of contract causes your client loss they may be able to recover their loss from you under contract law.

17 Reliance Crucial whether it be for breach of contract or in tort. There must be reliance by the plaintiff, to their detriment, on the report in question. The plaintiff must establish that they has have sustained some form of loss by relying on the content of the report in question. Without this reliance the report cannot be considered causative of the plaintiff s loss.

18 Scenario One A potential purchaser of a property engages a pest and/or building inspector to conduct a pre-purchase inspection of a property on their behalf. They pay a fee for the services rendered by the inspector who conducts the inspection and provides his/her report accordingly. Offer Acceptance Consideration

19 Scenario Two A vendor engages you to prepare an inspection report, which it later provides to the purchaser with your knowledge. In this situation the person who ultimately receives your report is not your direct client. Offer Acceptance Consideration Contract between the Inspector and the Vendor not the purchaser of the report. Common law duty of care - the purchaser of the report falls within the category of persons within their contemplation as at the time of conducting the inspection and preparing the report. Should the Inspector have been negligent in the inspection and/or report this will sound in a claim based in negligence.

20 Scenario Three A vendor engages you to prepare an inspection report, which it later provides to the purchaser without your knowledge. Again, in this situation the person who ultimately receives your report is not your direct client. Offer Acceptance Consideration Contract between the Inspector and the Vendor not the purchaser of the report. Common law duty of care - the purchaser of the report still arguably falls within the category of persons within their contemplation as at the time of conducting the inspection and preparing the report. Should the Inspector have been negligent in the inspection and/or report this will sound in a claim based in negligence.

21 Scenario Four A real estate agent engages you to prepare an inspection report, which it later provides to the purchaser with your knowledge. Again, in this situation the person who ultimately receives your report is not your direct client. Offer Acceptance Consideration Contract between the Inspector and the Vendor not the purchaser of the report. Common law duty of care No doubt you are aware the report is to be passed on. Should the Inspector have been negligent in the inspection and/or report this will sound in a claim based in negligence.

22 Scenario Five A real estate agent engages you to prepare an inspection report, which it later provides to the purchaser without your knowledge. Again, in this situation the person who ultimately receives your report is not your direct client. Offer Acceptance Consideration Contract between the Inspector and the Real Estate Agent not the purchaser of the report. Common law duty of care No doubt you should be aware the report is to be passed on. Should the Inspector have been negligent in the inspection and/or report this will sound in a claim based in negligence.

23 Scenario Six Reports are prepared for a real estate agent in relation to a property on their books. They are not paid for by the real estate agent, but potential purchasers are directed to the inspector to buy the reports. No contractual relationship between Inspector and Real Estate Agent. Contractual relationship between Inspector and the ultimate purchaser of the report. Offer Acceptance Consideration Exactly the same as Scenario One above.

24 Consequences of Breach of Contract/Breach of Duty The cost of repairs/works required to bring the property up to the standard/condition the report suggested. The difference in purchase the price if a properly prepared report would have led to a lower offer being made. In the most serious of cases it could include the cost of demolition and reconstruction.

25 Benefits of a Contractual Relationship You can agree to limit the scope and ambit of any inspection and report can be limited by agreement between the parties. A properly prepared report should, as we have discussed, include a direct reference that the report has been prepared subject to Australian Standard This Standard contains many limitations on the scope and nature of the inspection and report.

26 Australian Standard Visual inspection only. Establishes the report is not a certificate of compliance. Not a warranty against future defects developing. Major defects only. Access issues.

27 Conclusion Conduct your inspections and prepare your reports on the basis you may not know, or even be able to control who the report goes to. Know that you are potentially exposed under: Contract Tort Consumer Protection Laws Accept that you will be found to owe a duty of care to persons who rely on your report that the Court will conclude ought to have been in your contemplation. At all times the inspection should be conducted with reference to and the report should reference Australian Standard AS Inspection of buildings Pre-purchase inspections Residential Buildings.

PRIVITY OF CONTRACT. An assignment of all rights implies both an assignment and a delegation.

PRIVITY OF CONTRACT. An assignment of all rights implies both an assignment and a delegation. PRIVITY OF CONTRACT As a general rule, only the parties to a contract the promisor and the promisee owe any duties and enjoy any rights arising from the contract. Common law recognizes three exceptions: