A building inspection company carried out a pre-sale inspection report for a vendor and charged them $300 for a short report following a visual inspection (no invasive testing).  The report did not identify any serious leaks and said the property was in good order and well maintained.  A disclaimer about the need to obtain more detailed testing was attached.

The vendors passed the report (without the disclaimer) to prospective purchasers who relied on the report and did not get their own building report done.  The house turned out to be a “leaky home” with serious leak issues.

The inspection company and its owner (as the inspector) have both been personally found liable for damages of $170,000 under the Fair Trading Act, as the report was misleading and deceptive (no intention to mislead or deceive is required).

The damages were reduced by 50% ($85,000) for the purchasers’ own negligence in relying on such a short and superficial report when it is normal to get a full report with invasive testing done.

Three lessons arise:

  1. If you are the director of a small company and personally carry out the work, the Court can impose personal liability for your errors. You lose the limited liability protection of having a company.
  2. Put disclaimers in the body of your report so they cannot be detached when the report is passed on to others.
  3. Home buyers should not rely on a vendor’s short non-invasive report but get a proper report done with invasive testing so you can be more confident of the soundness of what you are buying.

Alan Knowsley