Subject to Building and Pest: Can a Buyer Simply Walk Away?

For many Queensland home buyers, a building and pest inspection is an important part of the buying process. It is one thing to look around a property at an open home, but quite another to have a qualified inspector identify issues that may not be immediately obvious.

This is where the building and pest condition in the REIQ contract becomes important.

Under clause 4.2, a buyer can notify the seller that a satisfactory inspector’s report has not been obtained and that the buyer wishes to terminate the contract. But there is an important qualification: the buyer must act reasonably.

That requirement is easy to overlook.

What does “act reasonably” mean?

Clause 4.2 does not say that a buyer can terminate simply because an inspection report identifies defects. Equally, it does not require a defect to meet a particular monetary threshold or to be described as “major” or “structural”.

Instead, the buyer’s decision to terminate must be reasonable in the circumstances.

This means the contents of the inspection report will be important. A report identifying significant structural damage, extensive water damage or a serious termite infestation may provide a strong basis for termination.

On the other hand, relatively minor issues such as cosmetic deterioration, general wear and tear or routine maintenance items may make termination more difficult to justify.

For example, imagine a buyer receives a building inspection report which notes that a fan knob is missing from one of the ceiling fans. The missing knob may be inconvenient and may need to be replaced, but it would be difficult to suggest that this minor defect, on its own, provides a reasonable basis for terminating a contract to purchase the entire property.

Ultimately, it is not simply a question of whether the buyer is unhappy with the report. The question is whether the decision to terminate was a reasonable response to what the report revealed.

It is not simply a renegotiation clause

A common misconception is that a building and pest condition gives a buyer an opportunity to obtain a report and then negotiate a lower purchase price if defects are found.

In practice, parties will often negotiate following an inspection. However, clause 4.2 is not drafted as an automatic right to demand a price reduction. The buyer’s contractual right is to notify the seller that a satisfactory report has not been obtained and, provided the buyer has acted reasonably, terminate the contract.

That distinction matters.

A buyer who identifies a relatively minor defect and uses it simply as leverage to obtain a better price may face questions about whether they have acted reasonably.

What happens if the seller challenges the termination?

The REIQ contract gives the seller an important safeguard. If the buyer terminates, the seller can request a copy of the building and pest reports, which the buyer must provide without delay.

The report can therefore become important evidence when considering whether the buyer’s decision was reasonable.

For example, there is a significant difference between a report identifying a major termite infestation and one noting that a garage floor requires cleaning. While both matters may appear in an inspection report, they are unlikely to carry the same weight when considering whether termination was reasonable.

The takeaway

A subject to building and pest condition provides valuable protection for Queensland buyers, but it is not a blank cheque to walk away from a contract.

Clause 4.2 gives the buyer an important right to terminate where a satisfactory inspector’s report has not been obtained, but the buyer must exercise that right reasonably. Whether a termination is reasonable will depend on the circumstances, including the nature and seriousness of the issues identified in the report.

For buyers, the lesson is simple: read the report carefully and do not assume that every defect gives you a right to terminate.

For sellers, a buyer’s decision to terminate should not necessarily be accepted without question. Where there is a dispute, the inspection report and the circumstances surrounding the buyer’s decision may be critical.