We’re seeing quite a few contracts for purchase recently, as many of you move back into the market again (while many of you, of course, never left!). Many of these are unconditional, particular in so-called real estate hotspots such as the outer Melbourne suburbs, WA mining towns and lower-priced Sydney properties. However, we do still see a few with the standard pest and building inspection clauses, and worse, clauses with similar intentions drafted by real estate agents or the investor themselves.

The problem?

The whole idea of these clauses, in my mind, is to give you two additional options that you might not have otherwise;

  • getting out of the contract if something scary comes up, or,
  • using the reports to your advantage to renegotiate the price, if the results aren’t too scary after all.

The standard clauses provided by most of the Real Estate Institutes make mention of being subject to ‘major structural defects’ or ‘major pest infestations’. The issue with this should be obvious; what defines major? And even then, you should probably be able to see anything ‘major’ before making an offer, without needing a thorough inspection (particularly if you’ve got a builder or other tradie amongst your mates).

So in most cases, these clauses become almost worthless.

Self-drafted clauses are even more dangerous. While the intention may be there, the wording and meaning of the clause may render it effectively useless – even if something major comes up in the report that the REI clauses would usually cover you for. This includes the commonly used ‘subject to building / pest inspection being to the satisfaction of the purchaser’.

The solution? Talk to your solicitor. They should be able to draft something for you that achieves what you want it to; namely, the ability to pull out of the contract (or at least threaten to do so) if you don’t like the outcome from those inspections.

Otherwise, should the proverbial hit the fan… you may not be quite so well covered as you had thought.