The purchase of a residential property is a significant occasion, and many people will only purchase a property once or twice during their lifetime. Therefore, it is important to proceed with caution and undertake due diligence at the time of purchase, often this involves engaging an expert to undertake a pre-purchase building inspection.

So, what are your options if you discover you didn’t purchase the house you thought you were, or you discover significant hidden defects? First, you consider the conduct of the parties involved in the sale of the property, what representations were made and what duties were owed to you. Below we break down the position of the three most common parties in the sale of a property and comment on their responsibilities and liabilities if you find yourself in this unfortunate situation.

Vendor

The seller of a property is known as a vendor, and the vendor is not required to disclose known defects to you as the rule of caveat emptor applies, which essential means buyer beware. However, if positive assertions are made during the marketing and sale of the property those representations need to be true or the vendor may be liable for misrepresentation. The vendor is also liable for any representations made by the real estate agent in the marketing of the property as the agent acts as the vendor’s agent, so liability rests with the vendor under the Contract and Commercial Law Act. In addition, real estate agents often request disclosures from vendors as part of the marketing and the vendor will be required to be truthful when completing those disclosures. If you rely on these representations in purchasing the property, you may have a claim.

If the vendor or their agent has made any misrepresentations in marketing the property, it is possible to sue them to recover the losses you have suffered.

The real estate agent

The real estate agent acts as the agent of the vendor and therefore must represent the vendor’s position, and as discussed, the vendor will be liable for any representations the agent makes. However, an agent’s obligations go above, and beyond those of the vendor, an agent must disclose any defects or relevant information known to him/her, failure to do so will be a breach of their professional obligations. Also, an agent must inquire as to any common or obvious defects (such a leaky building risk for monolithic clad houses) and obtain in writing confirmation the house does not suffer from those defects or advise the purchaser of the potential risk and advise them to obtain their own expert advice. Failure to do this can result in a claim and/or a breach of their professional obligations. For example, an agent failing to warn of the risk of leaky buildings to the purchasers or obtain confirmation the building was not defective and was found to be liable for this breach in the Real Estate Agents Disciplinary Tribunal.

Real estate agents are bound by the Fair Trading Act which means they cannot make any representations (or omissions) which are misleading or deceptive. This means they cannot include any misleading or deceptive representations during the sale of the property. Therefore, if the property was marketed using representations which were misleading or deceptive you can recover damages from the agent for those representations.

Pre-purchase inspector

A pre-purchase building inspector will typically be engaged by a purchaser to inspect a property and provide verbal and written advice about the condition of the property prior to their purchase. A pre-purchase inspector owes the purchaser a duty to exercise reasonable skill and care when undertaking their inspection and if they don’t meet this standard they can be liable in negligence. Often claims against pre-purchase inspectors will involve the inspector failing to identify obvious defects or advise the potential purchaser of the implication of identified defects. Inspectors are also bound by the Fair Trading Act and cannot make misleading or deceptive statements, which can include statements the house is in good condition when it has significant defects.

What to do

While each case will be unique and depend on its specific circumstances, the above outlines some of the issues to consider with the parties involved in the sale of a property. If you have discovered defects or issues with your property and feel like you may have a claim, we recommend you contact us for advice as soon as possible.

For more information

Our litigation department is experienced with claims arising from pre-purchase representations and is available to assist with any questions you may have. Feel free to get in touch with Michael Wolff on 04 495 8919 or Shehan Gunatunga on 04 495 8923.

Further reading:
Purchasing your first home – when should I see a lawyer?
A Builder’s Standard of Care – what you need to know!