Popular Building and Pest Special Condition Raises Red Flags for Buyer’s Termination Rights
- a Buyer can terminate under the standard building and pest condition;
- a Buyer must act reasonably when terminating under building and pest; and
- parties may include a special condition restricting the Buyer’s right to terminate to cases of active termite damage or structural damage to the dwelling.
What is a Building and Pest Condition?
Parties to a Contract of Sale in Queensland may elect to include a building and pest condition in their Contract. A building and pest condition is inserted for the benefit of the Buyer making the Contract conditional on the Buyer receiving a satisfactory building and pest report. Read more on Building and Pest conditions…
Reasonable Conduct and General Right to Terminate
The Buyer has the right to terminate the Contract in the event that they receive an unsatisfactory building and pest report. The Buyer is under the obligation to act reasonably with respect to the termination under Building and Pest.
This means that Buyers are restricted in their right to terminate on trivial issues with the property and must make reasonable requests to the Seller. For example, a Buyer may not be conducting themselves reasonably if they were to terminate the Contract or request a significant reduction in purchase price over a broken doorknob.
This is not to say that a Buyer has no right to terminate the Contract over trivial issues. In f
act, there is some ambiguity as to what constitutes reasonable conduct. This ambiguity raises potential for conflict between Contracting parties.
It is for this reason that Sellers normally opt to include a special condition in Contracts subject to building and pest conditions. This special condition restricts the Buyer’s rights to terminate, drawing a clear line in the sand between what the parties consider reasonable and unreasonable conduct. The special condition is typically as follows:
“Special Condition 4 replaces Standard Clause 4.1 of the Contract
- This Contract is conditional on the Buyer obtaining a written building and pest report which does not report evidence of an active termite infestation or structural damage to the dwelling.”
Recommendations for Buyers & Sellers
- a Seller who is concerned that a Buyer will terminate under building and pest over trivial issues should consider including a similar special condition;
- a Buyer who is likely to be concerned about minor issues with the property should avoid signing a Contract with this special condition; and
- a particularly nervous or anxious Buyer should opt for a due diligence clause. A due diligence clause gives a Buyer the right to make extensive property enquiries and to terminate the Contract should any enquiries be unsatisfactory.
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By Aspen Roggeveen