Upon completing a pre-settlement property inspection for the purchase of a family home, a couple discovered that the underfloor heating at the property was not working.  Although the underfloor heating was not turned on when the couple viewed the property at the “open home”, the couple noted the controls for the facility on the walls in the hallway and bathroom. 

The underfloor heating was not recorded in the marketing material as a feature at the property, nor was it recorded in the Agreement for Sale and Purchase.

However, the Agreement for Sale and Purchase general terms of sale clause 7.2 does provide for the Vendor’s obligations as to warranties and undertakings that, “The chattels, and all plant, equipment, systems or devices which provide any services or amenities to the property, including heating...are delivered to the purchaser in reasonable working order…but failure to deliver them shall only create a right of compensation.”

Any issues that arise at a pre-settlement inspection are not “deal breakers”.  The transaction progresses to settlement, subject to negotiations with the Vendor. Issues are generally remedied by one of the following:

  1. The Vendors fix the problem prior to settlement; or
  2. A reduction in purchase price; or
  3. The Vendor’s lawyer holds an agreed amount of settlement funds in their Trust Account until the issue is either attended to at the expense of the Vendor within an agreed time frame and thereafter, the funds disbursed to the Vendor, or if the works have not been carried out, may be disbursed to the Purchaser.  This outcome is very much dependent upon the arrangement agreed between the parties prior to settlement.

In the example above, the Purchasers negotiated an amount for the Vendor’s lawyer to hold in his Trust Account so that the Vendor could arrange to have the underfloor heating repaired after settlement.

While the heating was reinstated in the living area, unfortunately in the entrance hall and the bathroom underfloor heating could not be restored without more invasive underfloor investigations that would have required the removal of the period floor tiles. 

The cost for the remaining, and more invasive, repair work was very likely going to exceed the amount of money held in Trust. 

A compromise was negotiated, and the Purchasers were able to have an agreed amount of money returned to them in compensation, but were left with the responsibility of attending to outstanding heating issues in the entrance hall and bathroom themselves.

How could this situation be avoided?

  • At an open home, the real estate agent will be able to provide you with a copy of the Agreement for Sale and Purchase.
  • Immediately check the chattels that are listed in the Agreement for Sale and Purchase – everything you expect to form part of the sale (including remote controls for heat pumps and garage doors!) should be included in Schedule 2 on page 12.
  • If in doubt about any chattels, ask the agent questions.
  • Check that all the chattels listed in the Agreement and any other chattels and fixtures that are not listed, are working.  This may mean, for example, checking the hot water cylinder, underfloor heating, central heating, oven and lights.
  • If there are any additional fixtures such as underfloor heating or central heating, instruct your qualified builder to pay particular attention to these matters and to advise you, if required, to seek a specialist opinion on these matters, before you sign the Agreement (or before you confirm your builder’s report condition if you are making your offer conditional on obtaining a satisfactory building inspection report).
  • At your pre-settlement property inspection, check those chattels and systems again – they should be in the same working order or condition that they were in when you viewed them at the open home or other inspection.

It is important that you go into a contract with your eyes open. Your due diligence investigations begin at the first viewing of the property by checking all the chattels, fixtures and fittings, asking the real estate agent about the property disclosures, and checking the Agreement that the agent gives you.

We highly recommend your due diligence investigations include not only obtaining a LIM Report, but also a building inspection report by a qualified builder.  For more information on your pre-contract due diligence investigations, please go to this link to read our article:

https://www.raineycollins.co.nz/your-resources/articles/buying_a_house_what_should_i_do


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