Relying on vendor-supplied reports

A first home buyer signed an Agreement to purchase their first home.  An LIM report and builder’s report were supplied by the agent as part of the disclosure documents.  These reports were addressed to the vendor.

The first home buyer did not want to pay the costs for their own LIM report and builder’s report, so relied on the contents of the reports provided by the vendor’s agent and signed an unconditional Agreement, without taking legal advice prior.

A few months after settlement they discovered a leak in the roof.  They asked their lawyer whether they had any comeback against the builder who prepared the builder’s report for not drawing attention to this in the report.  Their lawyer advised that because they had no contract with the builder, and of course the report was not addressed to them, they had no comeback against the builder. 

Often when selling a property, a vendor will make available specialist reports for the property such as a LIM report and/or builder’s report to assist potential purchasers with their due diligence and to try to guarantee an unconditional offer.  However, while this can seem like a beneficial resource, there are some risks you need to be aware of when relying on vendor-supplied reports.

LIM (Land Information Memorandum) Report

As this is a local government-issued report, the Council is required to include all the information they have in respect of a property in the LIM report.  You should however note the following:

1. Check the date of the LIM report to ensure that it is current and up to date. LIM reports are only valid on the date of issue.
2. Check with the vendor (via the agent) to see if there have been any works or any new information come to light about the property since the LIM report was issued.
3. Contact the Council to see if the LIM report is still current and/or if there have been any changes of note since it was issued.
4. If the property is a unit title, check that the report is for the particular unit you are looking to purchase.  Often the LIM report will be for the complex as a whole.  Importantly, as above, as the LIM report will not be addressed to you, then there will be no legal recourse for you should there be any information contained in the LIM report that is incorrect or missing.  This is because the contract to provide the LIM report is between the vendor (or agent) and the Council.

Therefore, it is also recommended that you obtain your own LIM report especially if you are concerned regarding the accuracy of the information contained within the LIM report.

Builder’s Report

A builder’s report is prepared by a qualified building inspector for the vendor (or agent).  You need to be extremely careful when relying on this report.  It is important that you understand any potential issues this could cause. 

Here are some issues to consider in relation to a vendor-supplied builder’s report:

1. The contract to provide the report is between the building inspector and the vendor (or agent).  This means that if the builder has made an error in this report, the builder is not liable to you for any such error. 
2. Some building inspection companies will agree to re-address the report to you (for a fee) so that the builder is then liable to you for any such error.  You would need to make enquiries directly with the building inspector to see if this is possible
3. Ensure you know exactly what the builder’s report includes and excludes.  For example, the report may exclude checking the weathertightness of a property (i.e. if it is leaking).  Often there will be a summary of what is covered by the report.  If not, we recommend that you check this with the building inspector directly.
4. Generally, most building inspections are non-invasive.  Therefore, if you have a concern about the weathertightness of the property, and/or water ingress at the property, you should ensure you obtain your own specialist report.
5. Furthermore, if the building inspector is working alone they will not undertake certain inspections that would be unsafe to do alone.  For example, they will inspect the roof of a property from a ladder (not go onto it), or may not agree to go into a roof cavity or under a house. 
6. Check the date of the builder’s report to ensure that it is current and up to date. 
7. Check with the vendor (via the agent) to see if there have been any works undertaken on the property since the date of the builder’s report (including any remedial work that may have been completed).  We would also recommend asking why any remedial works were undertaken. 
8. Check that the builder’s report was undertaken by a builder that has professional indemnity insurance and who carries out work in accordance with NZ Property Inspection Standards.

After taking into account these issues, you should consider whether you are satisfied with the risks involved in relying on a builder’s report supplied by a vendor (or agent), or whether you would prefer to obtain your own builder’s report.

As a general rule, the reports are only able to be relied upon by the person they are addressed to. In the event there are issues discovered at a later date which you consider should have been covered at the time of purchase in the reports, you will find it challenging enforcing your position based on vendor-supplied reports.

It is vital to take legal advice before signing an Agreement for Sale and Purchase, as there are many issues, like those above, that can trip up those who are not familiar with the law or the sale and purchase process.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.

Laurie Pallett and Raiyan Azmi