In a recent example a client entered into an unconditional contract to purchase a property that we subsequently discovered had internal alterations including the addition of an en-suite.  No building consent had even been applied for, for the work, let alone a Code of Compliance Certificate issued. On further investigation it was revealed that the alterations needed further work to make them compliant with the building code costing in the vicinity of $8,000.

While there is a warranty in the standard Agreement for Sale and Purchase that makes it the vendor’s responsibility to get works carried out during their period of ownership that require a building consent signed off under the Building Act (i.e. a Code Compliance Certificate issued), in this case the works had been carried out by a previous owner which meant the vendor warranty was of no assistance.  This left our client with two unattractive options – either:

  1. Update the works at their cost; or
  2. Ignore the works, but take on the risks associated with them.

These risks include a requirement to disclose the existence of the works when they sell the property at a future date as they now have specific knowledge of the situation, which is likely to have an effect on resale.  There is also a risk of long term damage if the works are faulty, which may not be covered by insurance because they resulted from non-compliant work.

So how could this have been avoided?  Carrying out a reasonable level of enquiry prior to committing to a purchase contract or prior to going unconditional in the case of a conditional contract, is a must for prudent purchasers.  This not only includes allowing an opportunity for your Solicitor to check the title search, but also includes the purchaser investigating the status of buildings on the property.

The most important enquiry we recommend a purchaser making is to check the building consent records at Council.  The purpose of such an enquiry is two-fold:

  1. To match the building plans held at Council with what is on the property
  2. To check whether the buildings on the property have had any work carried out on them under a building consent, during the period of the vendor’s ownership.

Nearly all building works on a property require a building consent and it is essential to ensure those works were carried out in accordance with the building code, with the necessary consent and have received code compliance sign off from the Council.  A breach of this requirement may not only have a negative impact on the value of the property, but could also impact on the ability to finance it and insure it.  In the current climate following the problems associated with leaky buildings, many financiers and insurers are now asking for evidence that the buildings they are financing and insuring are compliant, especially where they have been recently built or altered

If as in the above situation it is ascertained the works were carried out by a previous owner, then finding this out before being committed to perform the contact gives the purchaser options.  These include:

  • Negotiating with the current vendor to take on the responsibility to get the work signed off;
  • Negotiating an appropriate price reduction for taking on the responsibility themselves;
  • Pulling out of the contract, assuming it has the appropriate condition to make it conditional on a satisfactory enquiry in this respect.

For more information on obtaining pre-purchase information you can download a more detailed version of this article dealing with Land Information Memorandums and Property Reports free from our website