Day of Settlement Inspection - What are my rights as a purchaser?

In Queensland, a standard conveyancing contract provides the buyer with a right to inspect the property prior to settlement. The legalities surrounding final inspections are actually a bit complex and it is impossible to provide clients with a straight answer, at least without knowing the results of the inspection. Let’s consider the situation with ‘stand alone’ (i.e. non-body corporate) contracts. In broad terms, the legal situation is as follows:

1. The property is at the buyer’s risk from 5pm on the first business day after signing the contract. That means that generally speaking if there is any damage to the property between the contract date and the settlement date, it is the buyer’s problem and not the seller’s responsibility.

2. That underlying position is qualified by a standard condition in most contracts, which states:

The Seller must use the Property reasonably until settlement. The Seller must not do anything regarding the Property or Tenancies that may significantly alter them or result in later expense for the Buyer.

3. The effect of reading the standard clauses mentioned above together is that the buyer is responsible for fair wear and tear to the property, and any non-fault based damage or disaster affecting it. As conveyancing solicitors, we therefore advise our clients buying property to take out insurance pending settlement to protect against such things. However, if a seller willfully or negligently damages the property they are liable to the buyer for that.  

All the above establishes is that the buyer has rights against the seller in such circumstances. It then becomes a question of, what remedies can you obtain? Not every breach of contract by the seller entitles the buyer to terminate the contract. The law says that the right to termination arises only in the case of very serious breaches, which effectively undermines the benefit that each party had contracted for. The clause in issue here is one where there can be either a trifling breach of it (e.g. a scratch on a wall) or a very serious breach of it (e.g. destruction of all or part of the improvements to the property). If the buyer could establish that the breach was sufficiently serious, the buyer could terminate. If not, then the buyer’s rights are to damages suffered because of the breach by the seller.

It is important to note that under Queensland law, rarely would the buyer be entitled to say to the seller “you breached the contract, and I will not settle until you fix it”. Similarly, the buyer is not entitled (unless the seller would agree) to a reduction in the purchase price for the damage caused. In most cases the buyer is required to make an “election”. That means the buyer either assesses the breach as serious enough to terminate the contract and does so, or proceeds to settle it and reserves the right to claim damages. The buyer can then sue the seller for those damages after settlement, if considered worthwhile (there are issues of costs and time required involved, so most people would not bother pursuing modest claims).