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Peter Rogozik Property Consulting

Building Clause Beware

The standard Real Estate Institute of Victoria building defects clause that is used by real estate agents has proven to be ineffective by a recent decision of the Victorian Supreme Court.

The clause states that a buyer can only avoid a contract of sale if a “major structural defect” is found. I have never agreed with the insertion of this clause and have always advised my clients to insert a clause which includes all defects.

There are a number of defects that are non structural that are serious enough to warrant avoiding the contract e.g. rising damp, extensive termite damage. These types of building faults can be very costly to rectify.

In the case mentioned above this particular clause was inserted into a contract for the purchase of a property at the direction of the selling agent. After a building inspection was completed damp was detected due to faulty plumbing.

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The buyer requested the contract be rescinded however the vendor did not agree claiming it was not a major structural defect as stated in the clause. The buyer’s building report did not state that it was a major structural defect.

The matter went to the Victorian Supreme Court. The judge found in favour of the buyer and allowed her to cancel the contract and get her deposit back.

The judge said the report did not have to use the specific wording “major structural defect”, it was only necessary for it to show there was one. The long term effects of damp entering a building would eventually lead to a major structural defect.

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