A Palmerston North family has become a recent example highlighting the dangers of relying on reports supplied by vendors. The purchaser of the Palmerston North property relied on a builder’s report which was supplied to the purchaser by the real estate agent on behalf of the vendor. The report failed to acknowledge the very poor condition of the property’s roof. This has left part of the home uninhabitable only a few short months after the family moved into the property.
LIM and building reports
It’s becoming more common for real estate agents (on behalf of their vendors) to provide prospective purchasers with reports obtained by them e.g. Land Information Memorandum (LIM) and building reports.
A LIM is a Council issued report which includes information the Council has on record in the respect of the property, such as building and resource consents, rating information, drainage plans, etc.
Building reports provide valuable information to a purchaser about the state of the home or other buildings on the land e.g. structural soundness, weather-tightness, plumbing and/or electrical condition of the property.
If the LIM or building report discloses problems about the property the purchaser may be able to require the vendor to fix the problems, or may be able to withdraw from the agreement if the vendor won’t, or can’t, fix them.
Beware vendor-supplied reports
Reports supplied by the vendor (or the vendor’s real estate agent) save the prospective purchaser time and money - ordering and paying for the reports. However, there can be risks if you rely on these vendor supplied reports.
If the Vendor has provided an old LIM report there may be information missing which a current LIM would show. If there is any error, omission or misstatement in the LIM report the Council could be legally liable to compensate you for loss suffered by you as a result of any defect in the report.
There is risk that the vendor may have intentionally (or unintentionally) altered the LIM report so it fails to include all the information which was included in the report originally issued by the Council.
The law is unclear whether a purchaser (or any other person who wishes to rely on the LIM) can hold the Council liable for a defective LIM if the purchaser (or other person) did not apply for the report, or pay for it. When a person applies and pays for a LIM they have a contract with the Council which is enforceable if the Council makes any mistakes in the LIM.
Similarly, a vendor-supplied builder’s report does not create a contract between the purchaser and the builder or inspector. This means the builder is not liable to the purchaser under a contract if the builder has made an error in the report. The purchaser has no other legal remedy against the builder or the vendor for costs they incur because of the error.
Unfortunately, the Palmerston North family’s situation is becoming more common – the family has been left with a $43,000 bill to repair the defective roof.
Our recommendations
If you are purchasing a property we strongly advise you accept the additional cost and obtain your own reports rather than rely on any reports supplied by the vendor (or by the vendor’s real estate agent).
If you decide to rely on a vendor-supplied report, we recommend at the very least you check the report is up to date. If the report is not current, we recommend you ask the vendor or real estate agent to confirm the vendor has not done any work on the property since the date of the report.
Whether you intend to rely on a vendor’s building report, or obtain your own, we suggest you check the builder or inspector is sufficiently qualified and experienced to provide the report, currently holds professional indemnity insurance and has undertaken their work in accordance with NZ Property Inspection Standards (NZS 4306:2005).
If you would like any advice about property inspection reports please get in touch with one of our experienced and friendly property practitioners.
Carla Rule and Kainoa Hemi are part of our Private Client team at Norris Ward McKinnon.
