Builder's Report Conditions

Builder's report can be a safeguard for buyers

Farmer Freddy is considering buying another rental property. Thankfully, his daughter Pebbles is on hand to answer his questions. 

“Pebbles, I’m thinking of putting in an offer on a property,” Freddy states. “Is it worth getting a builder to check it out?”

“Well, Dad”, replies Pebbles, “most purchasers these days are engaging a builder to check over the property they are looking to purchase. Given the amount of money that is involved, I think it’s a good idea.”

“How do I go about arranging it?” asks Freddy.

“Well, you could make your offer conditional upon obtaining a satisfactory builder’s report.  That means you will be able to cancel the agreement if there are problems disclosed by the report,” replies Pebbles.

“Nearly all property transactions are conducted on the standard form Agreement for Sale and Purchase produced by the Auckland District Law Society and the Real Estate Institute of New Zealand.  The standard form agreement does contain a builder’s report condition which you can elect to include. Just be careful if you are going to use it though, as the condition in the agreement only allows you to cancel if the report is unsatisfactory based on an ‘objective assessment’. This means that you won’t be able to cancel the agreement if you simply get cold feet or if the problems disclosed by the report are of a minor nature.”

“That’s certainly good to know,” replies Freddy.

“The clause included in the standard form agreement also requires that the report you obtain be in writing, and it must be prepared in good faith by a suitably-qualified building inspector in accordance with accepted principles and methods,” continues Pebbles.

“So, I guess the days of getting a mate to give the property a ‘once-over’ are gone now?” queries Freddy.

“Pretty much,” replies Pebbles. “The other key point is that if you do obtain an unsatisfactory report and you want to cancel the agreement, you must provide a written copy of the report to the vendor upon their request. However, some building inspectors will require you to sign terms of trade which record that you are not able to disclose the report prepared by them to any third parties. If your builder’s terms of trade do record that, you will either need to negotiate with the builder to change their terms of trade or have your lawyer draft a different builder’s report condition to go into the agreement.”

“Thanks, Pebbles” says Freddy.  “I had better give that some thought.”

The content of this document is necessarily general and readers should seek specific advice on particular matters and not rely solely on this document.

If you would like more information on any of the topics in this document, please contact your usual Auld Brewer Mazengarb & McEwen adviser. 

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Jeremy Hucker