Standards vs. Contracts in Real Estate Transactions

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Monday, February 22nd, 2016
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Quite often when arranging a building inspection with the real estate agent selling the property, I am met with a chorus of ‘this is a structural only inspection’ or ‘you can’t use compliance in these inspections.’

In some instances, I understand their frustrations as a contract has already been signed. However, I must still undertake the inspection as per AS4349.1.

First, let’s take a quick background look at the buying process out here in the Wild West. An offer is placed on a property, for which there is no cooling off period. If a building inspection clause is added to the contract (unfortunately, many people are not made aware that this clause is optional before it’s too late), then a separate annexure is added to the contract. Different real estate agencies may adopt different annexures, although the most commonly used annexure through REIWA states the following:

“Structural Defects” means a fault or deviation from the intended structural performance of a building element and is a major defect to the building structure of sufficient magnitude where rectification has to be carried out in order to avoid unsafe conditions, loss of utility, or further deterioration of the building structure. Structural defects do not include any non-structural element, e.g. roof plumbing and roof covering, general gas, water and sanitary plumbing, electrical wiring, partition walls, cabinetry, windows, doors, trims, fencing, minor structures, non-structural damp issues, ceiling linings, floor coverings, decorative finishes such as plastering, painting, tiling etc., general maintenance, or spalling of masonry, fretting or mortar rusting.

This is problem number one: definitions. AS 4349.1 states that a structural defect is a fault or deviation from the intended structural performance of a building element. Key to this statement for my interpretation of the standard is the use of the word building element instead of structural element.

A building element is defined as a portion of the building that, by itself or in combination with other such parts, fulfils a characteristic function, for example supporting, enclosing, furnishing or servicing building space. Therefore, in conjunction with the standard a structural defect may include some of the items listed in the contract as a non-structural element. Terms such as significant defect, structural defect, and major defect are also all used; we need a clear definition of the word defect.

A settlement agent who is also a lawyer once advised me that all my inspections should be carried out to the contract only, although I feel that this would be doing a disservice to my clients and would possibly be putting lives at risk. For example, if I were to see exposed electrical wiring whilst conducting an inspection, surely I would have a professional duty to advise my clients of this safety hazard. The building commission has released a statement that any electrical contractor or electrician is to inform the owner or occupier of the situation and advise that remedial work is to be carried out upon the identification of unenclosed joints in insulated cables. At that time, the electrical contractor or electrician will issue an advisory letter (provided by EnergySafety) to the owner or occupier, to apprise the owner/occupier of the situation and associated hazards.

This leads to problem number two: licensing. The real estate agent has every right to question how I am able to make these judgements if I am not a licensed electrician, although unfortunately in many cases I am the only person to access the roof space prior to my client gaining ownership of the property, and their safety should always be my priority. In other instances, electricians have previously accessed the roof to hard-wire smoke alarms and have not inspected the roof space whilst up there, which I believe should be factored into the price of installation and audited by energysafety. With DFES also stating that old or poorly installed ceiling downlights are thought to cause at least one house fire a week in Western Australia, surely an electrical inspection could become mandatory, as smoke alarms & RCDs are often inspected in any case.

As with the two electrical hazards noted above, many standards have changed as a result of emergent strategy. As Daryl O’Brien at the recent Build Australia’s Future Conference described, this is ‘code by catastrophe,’ or the introduction or amendment of code following an event or series of events that have impacted upon life safety.

This leads to problem number three: compliance. As a building inspector, I feel it is my professional duty to ensure the safety of my client. The commentary for clause 2.3.5 of AS4349.1 seemingly agrees with me, even if the intended use of the commentary is for information only and does not need to be followed for compliance with the standard.

The definition of a ‘major defect’ includes defects that have to be rectified to avoid the development of unsafe conditions, and thus any defect that is a safety hazard has to be reported as a major defect. However, if in the opinion of the inspector, a defect is a serious hazard to occupants or is about to become a serious hazard to occupants, it is considered that the inspector has a professional duty to ensure that the report clearly identifies the hazard in such a manner that it is not easily overlooked by a reader of the report.

This can again lead to confusion when reporting, as the extent of reporting is classified as major defects, a general impression of minor defects, and any major defect that is an urgent and serious safety hazard. Using recent compliance developments as a guide (in addition to the electrical examples), are the lack of lift off hinges to WCs a serious hazard to occupants? Are balustrades not set at the correct height as per current standards a serious hazard to occupants? Are low-hanging blind cords without restraint or safety cleats a serious hazard to occupants?

The list goes on. I would say there are many cases around Australia that would prove that the above examples should be clearly brought to the attention of the occupants of the building. I fear that by providing this information, I may be providing my client with the most information I can to the most of my knowledge, although in many instances this places me in the middle of unnecessary confrontation due to a lack of understanding of the standard and the contract documents. With this particular problem, I can sympathise with real estate agents, as it is unfeasible for a house to be brought up to compliance with each sale, although I have a professional duty nonetheless.

The above problems need addressing sooner rather than later if Perth residents are to achieve their right of acquiring a home safe for occupancy. Many building inspectors within the industry in Perth believe the only way to obtain recommendations from real estate agents is to produce reports that are less detailed, and I have to admit that I have witnessed my reports being lambasted by real estate agents on many occasions. However, I also believe that the majority of real estate agents want to do the right thing.

Unfortunately, the lack of clarity from the Australian Standard for pre-purchase building inspections and the lack of cohesion between the standard and the contract of sale often create unnecessary stress for all parties involved. I hope that the building commission can work closer with REIWA to provide more clarity throughout the process of buying a home, as this would be of great benefit to all parties involved, particularly the most important party in the transaction, the future homeowner.

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