In a recent case, a couple bought a property on the North Shore which had been previously renovated and extended by the vendor as an owner-builder. The local council had issued a development approval and when the works were finished the council issued a Final Occupation Certificate.

That certificate was attached to the contract of sale. The purchasers did no more than read that certificate and form an expectation that the council would have acted properly in issuing the certificate.

After the couple had completed the purchase significant structural defects and non-compliances with the relevant plans and specifications became apparent (lower level block walls not having sufficient reinforcing bars, not being filled with concrete and not being properly tied to the slab and to the horizontal beams holding up the upper level).

The contract by which the couple had purchased the property included a clause which stated that the purchasers were buying the property subject to any defects, and that they were relying on their own inquiries and inspections, and that they were specifically not relying on any statements or representations made by the vendor.

The couple needed to spend very significant amounts of money to fix the problems, and they were aware that if they were to eventually sell the property themselves, the non-compliances could result in them receiving a lower price. So they sued both the council and the owner-builder for compensation.

They succeeded against the owner builder vendor but failed against the council.

To win against the council the purchaser had to show that the council ought to have foreseen that a purchaser would have relied on the certificate in deciding whether to buy the property and on what terms.

The Court of Appeal had to assess the presence or absence of foreseeability of harm, reliance and assumption of responsibility, and vulnerability to determine whether a duty of care should be imposed on the council.

The Court found that the Council did not owe the purchaser a duty of care to look out for defects as an occupation certificate only authorises the occupation and use of a building and does not certify that building work does not, or is not likely to, contain latent defects or that the work complies with the development plans.

The Court said that the Council merely goes through a checklist to see if a certificate can be issued. The Court also said that the purchasers were not vulnerable to the Council’s failure to uncover defects because the purchaser could have negotiated the price down to safeguard themselves from any loss that might result from potential defects, could have negotiated warranties from the vendor as to the quality of the building work and that the purchaser's had the benefit of the statutory warranties in the Home Building Act.

This case serves as a reminder for purchasers of properties to get an independent, comprehensive building inspection report before exchanging contracts or bidding at an auction for a property.

This case is similar to the court's decision some time ago that the risk that there are unapproved and therefore illegal structures on a property is a risk that the purchaser takes on by exchanging a contract to buy it unless the contract says otherwise.

The general conveyancing regulations give a buyer a right to have council check for illegality and to call the contract off if council decline to issue a Building Information Certificate because of any undisclosed illegality

If you are thinking of buying or selling a property consider Craig Lockart who is an accredited Property Law Specialist for your conveyancing and/or contract advice to avoid situations like this happening to you!