By Russell Cocks, Solicitor
First published in the Law Institute Journal
The law requires us all to do, and not do, a lot of things. Specifically in relation to ownership of real estate, various statutory requirements impose duties on home owners and those engaged in the business of building homes. Indeed, failure to comply with those statutory obligations can result in the imposition of penalties for non-compliance. But the existence of those legal obligations and sanctions for breach do not normally impact on the relationship between vendor and purchaser, which is essentially governed by the fundamental legal principle of privity of contract.
That a vendor has not complied with a statutory obligation or has in fact breached such an obligation remains a matter between the vendor and the statutory authority and does not give a purchaser any right to insist upon the vendor fulfilling that statutory duty. A vendor might be obliged to put only recyclable material in the green bin but regularly uses that bin for non-recyclable rubbish. This may make the vendor a social pariah at the local kindergarten and expose the vendor to a penalty, but it does not impact on the relationship between the vendor and purchaser should a contract of sale be entered into. Likewise, the failure by the vendor to comply with statutory duties relating to pool fencing or installation of smoke alarms is a matter exposing the vendor to sanction, but does not give the purchaser the right to insist upon the vendor complying with those obligations during the course of the contract and prior to settlement.
The purchaser would only have such a right in one of two situations:
- if a statute provides that failure by the vendor to comply with the statutory duty entitles the purchaser to avoid – as is the case with s 11 Sale of Land Act 1962 in respect of failure to have adequate body corporate insurance; or
- if a notice has been served in relation to the breach requiring the vendor to remedy the breach. Condition 15 of Table A gives the purchaser the right to insist that the vendor comply with such notices prior to settlement. However this right only applies in relation to notices served pre-contract, and any notice served post-contract burdens the purchaser.
The obligation for a home owner to have an occupancy certificate or certificate of final inspection in relation to building works performed on the property arises from ss 38 and 39 Building Act 1993. The objective is to ensure that works on properties achieve a certain standard of completion and safety and the failure to obtain a certificate upon completion of works may result in a statutory penalty and, for participants in the building industry, may lead to loss of registration. But the absence of a certificate does not undermine the vendor’s ability to sell the property or give a purchaser any right to insist that a vendor obtain a certificate prior to settlement.
The one exception is in the case of a new home or apartment purchased off-the-plan. In such circumstances it is possible to argue that, on the basis of the contractual obligation to deliver vacant possession, a purchaser is entitled to expect that the purchaser will have the legal right to occupy the premises and that the vendor is thereby obliged to obtain a certificate to that effect. This argument respects the fundamental principle of privity of contract: see McDonald v Balaam P/L (1996) ANZ ConvR 447.
Similar arguments apply in relation to builder warranty insurance certificates. Registered domestic builders are obliged to have warranty insurance and a vendor selling a property with the benefit of such insurance might use that fact as a positive marketing attribute. But no law requires a vendor to provide the certificate of insurance, either prior to contract, in response to an inquiry during the contract, or at settlement. Some vendors choose to do so, but a purchaser does not have a right to insist upon the vendor providing those certificates. The purchaser does have a right to request a certificate from the insurer (whoever that might be) but only after the purchaser becomes the owner: see ministerial order 2003 S98.
Owner-builders who sell might have an obligation to obtain insurance and disclose particulars of that insurance in the vendor statement, but that is as a result of a specific obligation in s 32(1A) of the Sale of Land Act 1962, and failure to do so gives the purchaser a statutory right to avoid. This obligation only applies to owner-builders and has no application where the warranty insurance was issued to a registered builder.
Failure to have adequate pool fencing, working smoke alarms, certificates relating to occupancy, certificates relating to warranty insurance and indeed the fact that properties might have fill, be liable to flooding or contain asbestos, are merely defects in quality. In the absence of specific statutory intervention, such defects fall within the principle of caveat emptor (buyer beware) and are the purchaser’s problem. To purchasers who complain about such matters I say, ‘Would you like the vendor to repaint the bathroom too?’
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.