Pitfalls of Buying New Houses and Off-the-Plan Apartments

New residential property purchasers should obtain a defect survey PPI (pre purchase property inspection) report by a qualified building consultant experienced with the complex structures which are apartments, to highlight defects before settlement.

We say this for a variety of reasons;

(1) Draconian vendor contracts, which can severely impede a purchaser’s ability to seek defects rectification and sometimes can actually limit the number of ‘defect notifications’ and/or put a time limit on submission, if signed by a purchaser (refer sample Annexure 1)

(2) Apartment buildings above 3 stories no longer have Home Owners Warranty Insurance cover, which means individuals and the O.C have to litigate against a builder/ developer and

(3) Apartments have the most minimal 'critical stage' inspection requirements by the Principal Certifying Authority (PCA) of any residential building under the EP&A Act (section 109E (3) (d)), so it's little wonder they have the most defects and non-compliant issues and also why the HWI insurers lobbied the NSW Govt to remove the insurance some years ago. (refer Annexure 2 extract from EP&A Act)

NSW building standards have been spiralling down since 1997 (introduction of private certification and HWI) because;

(a) the bare minimum critical stage inspection requirements, which currently don't even include fire safety services as the PCA often relies entirely on individual contractors (e.g. fire door Co) self-certification to then certify that the works are compliant.

(b) The PCA and contractors are almost always employed by the vendor / developer and therefore there is potential for a substantial conflict of interest.

(c) the Building Professionals Board (BPB) who accredit and discipline PCA's often take little action and its complex to lodge a complaint.

(d) If the PCA is a Council they can and often do issue Orders on the Owners to rectify any non-compliant issues that are found and if this occurs after purchase from the developer its the poor unsuspecting new owners who become responsible yet they have bought off-the-plan assuming everything will be fine because it's 'new'. Also, for houses, the purchasers are relying on the validity of the Occupation Certificate for SEPP legislative compliance for properties whose DA was submitted after 01.07.04 to be BASIX compliant.

(e) If Council are not the PCA they usually are very reluctant to get involved as when they do the developer typically lodges a Land and Environment court claim, which makes it expensive to fight and so they often find it easier to issue rectification Orders on the subsequent unsuspecting purchaser. Councils see PCA’s as their competition and are now having to resolve the loss of revenue to PCA’s on minimum inspection requirements yet PCA misconduct leading to non-compliance comes back to Council to investigate due to the non-compliant DA consent that results.

We strongly recommend that Owners Corporations have a defect inspection survey of the common areas during the first 3-6 months or within the vendors defects liability period which is usually (but not always) defined in the sale contract.

Adding to consumer concerns, the Office Of Fair Trading removed licensing of NSW building consultants in 2009 meaning anyone can call themselves a 'building consultant' and there is no need to carry Professional Indemnity.

Under proposed Vendor Disclosure PPI legislation being considered by NSW Govt, this will be further compromised if the PPI is instigated by developers or real estate agents. The same Vendor Disclosure requirement in the ACT has resulted in RE agents dictating (or report shopping) who should inspect properties for sale to ensure a tame report is produced.

There are also implications for the proposed 2011 introduction of Federal legislation of Mandatory Energy rating on homes listed for sale when the NSW BASIX may not have been complied with simply because there is no as built verification inspection requirement for BASIX .

Annexure 1

Special Conditions

  1. In the event of inconsistency between these special conditions and the printed form contract, these special conditions shall prevail.
  2. The purchaser warrants to the vendor that it was not introduced to the property by any real estate agent other than the real estate agent listed on the front page of this contract. The purchaser further agrees to indemnify the vendor against any claim whatsoever for commission which is made by any real estate agent or other person other than the vendor's agent nominated in page 1 of this contract.
  3. This agreement constitutes the entire agreement between the parties and as such, the parties agree that they do not rely on any prior agreement, representation, arrangement or interpretation whether in writing, oral or by conduct or by omission not contained within this contract. The parties further agree that any such agreement, representation, arrangement or interpretation shall have no effect.
  4. Should either of the parties (or any one person who is joined as a party to this contract) die, become mentally ill, become bankrupt or enter into a scheme or arrangement for the benefit of creditors as defined in Part 5.1 of the Corporations law, then the other party may rescind the Contract by notice in writing and thereupon the contract shall be at an end and Condition 19 shall apply.
  5.  The purchaser acknowledges that the property and its inclusions and fixtures are being purchased in their present condition and state of repair and with any defects. The purchaser further acknowledges that the vendor or its agents have not made any representation or warranty as to the fitness or suitability for any particular purpose of the property or the improvements therein. The purchaser further acknowledges that it does not rely on any matter to which this clause could apply. The purchase acknowledges and agrees that it shall make no objection, requisition, rescission or claim for compensation in respect thereof.

Annexure 2

EP&A Act 2000 Sect 109E Principal certifying authorities

(d) that building work or subdivision work on the site has been inspected by the principal certifying authority or another certifying authority on such occasions (if any) as are prescribed by the regulations and on such other occasions as may be required by the principal certifying authority, before the principal certifying authority issues an occupation certificate or subdivision certificate for the building or work, and

Section 162A Critical stage inspections required by section 109E (3) (d)

  1. For the purposes of section 109E (3) (d) of the Act, the occasions on which building work must be inspected are as set out in this clause. Note. These inspections are the critical stage inspections.
  2. Except as provided by sub clause (3), the critical stage inspections may be carried out by the principal certifying authority or, if the principal certifying authority (PCA) agrees, by another certifying authority.
  3. The last critical stage inspection required to be carried out for the class of building concerned must be carried out by the PCA.
  4. In the case of a Class 2 (Apartments) 3 or 4 building, the occasions on which building work must be inspected are:

(a) (Repealed)
(b) prior to covering of waterproofing in any wet areas, for a minimum of 10% of rooms with wet areas within a building, and
(c) prior to covering any stormwater drainage connections, and
(d) after the building work has been completed and prior to any Occupation Certificate being issued in relation to the building.