Caveat Emptor (Buyer Beware): purchasing a property with defects

It's common for property lawyers to hear stories of disgruntled buyers blaming vendors or agents for failing to tell them about defects in a property.

When buying a property, the principle of caveat emptor ('let the buyer beware') is still

given primacy as the legal position, with only certain limited exceptions.

Accordingly, a buyer should carry out all necessary due diligence before the contracts are unconditional.

These defects include defects to inclusions, such as air conditioning units, taps, ovens etc. Even when buyers obtain Pest and Building Reports, the report writers may not specifically test these items. It is recommended for buyers to undertake their own inspections as well as engage professionals.

It does not matter whether the defects could have been discovered by a reasonable inspection (patent defects) or whether they are hidden from sight (latent defects). A buyer buys the property subject to both forms of defects.

• Defects in Quality vs Defects in Title

It needs to be appreciated that we are referring to defects in quality of the property, as opposed to defects in title to the property.

As the name suggests, defects in quality relate to the 'quality' of the land (such as contamination, termite infestation, or broken appliances), whereas defects in title relate whether or not the title to the property can be transferred to the buyer without encumbrance.

The line between defects in title and defects in quality can become contentious with the following two examples:

1. The property contained coal, which vested in the Crown [Borda v Burgess [2003] NSWSC 1171].

2. The property was subject to an Aboriginal site, which also vested in the Crown and rendered half the land as undevelopable [Mehmet v Carter (2017) NSW ConvR 56-385].

In both cases, the Court held that these defects were defects in quality, not title. Accordingly, a buyer would have no claim in either case.

• Some exceptions to the Caveat Emptor principle with regard to defects in quality

Below is a non-conclusive list of some exceptions:

A. The property is brand-new and the contract contains a Defects Liability Period covering defects in quality.

B. A statutory warranty under the Home Building Act 1989 applies covering some defects (6 years for structural defects, and 2 years for non-structural).

C. There is a breach of a Prescribed Warranty under Conveyancing (Sale of Land) Regulation 2017, such as 'the land is not subject to an undisclosed adverse affectation', the planning certificate is accurate, there is no structure which would warrant the making of an upgrade or demolition order except as disclosed etc.

D. An agent has a duty to disclose "material facts" under s52 of the Property, Stock and Business Agents Act, but the bar for that law to apply is somewhat high (see i>Hinton v Commissioner for Fair Trading [2007] NSWADTAP 17). Agents also cannot mislead or deceive (but note sometimes they will be merely passing on the information from the vendor and will be 'mere conduits' at law).

E. There has been active concealment amounting to deceit (Wood v Balfour [2011] NSWCA 382 – note vendors here held not to be deceitful when they covered up termite damage some years prior to selling).

F. The Australian Consumer Law 'guarantees' (or other further contractual warranty assigned to the buyer) applies to certain defective inclusions or products.

G. The vendor is selling in the course of trade and commerce and is captured by the Australian Consumer Law provisions relating to misrepresentation which cannot be excluded by generalised exclusion clauses in the contract.

For professional property and conveyancing advice, contact Maclarens Lawyers on 96823777.