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How To Buy An Investment Property - Articles

Home Buyers – Property Condition at Settlement

Date: 01/04/2019

All too often we see the excitement of a client’s house purchase spoiled by a vendor that leaves the property in a mess.

In saying that, I recognise that many vendors go to great lengths to leave the property in pristine order; often in better order than it was in when they lived in it.  So, we are dealing with a minority of cases.

There are things that you can do as a purchaser to make sure that, if the property is not up to standard, you have the right to ensure the issues are addressed.

Firstly, be aware that the vendor’s obligation under a standard Victorian contract is as follows:

24.2 The vendor must deliver the property to the purchaser at settlement in the same condition it was in on the day of sale, except for fair wear and tear.

Fair wear and tear means that, for example if the hot water system wasn’t working when you signed the contract (the day of sale) or breaks down after you sign the contract, but before you settle, then it is the purchaser’s problem/expense. Put another way, if an appliance isn’t working when you move in then you need to be able to prove that it was working on the day you signed the contract and that it broke down as a result of some unreasonable use of the vendor.

This is not easy to prove in practice.

The solution is twofold:

Firstly, you should turn on every light and appliance to make sure it is working before you sign the contract. If something doesn’t work you can include a special condition that requires the vendor to fix it before settlement.

Secondly, you can include a special condition that requires the vendor to ensure that the appliances are in working order at settlement and the property is left in good condition. We recommend the following special condition: 

The Vendor agrees to ensure that the Property is in a clean and tidy condition at settlement and otherwise in the same condition as at the day of sale and all chattels (including rubbish) will be removed prior to settlement unless otherwise agreed.  The Vendor warrants that all appliances will be in working order on the Settlement Date.”

It is also worth mentioning general conditions 24.4 to 24.6. These conditions provide a mechanism to resolve minor (up to $5,000) issues about the condition of the property. In short, if you, as purchaser, are not happy you can insist that up to $5,000.00 of the contract price is paid into a trust account until the issue is resolved.  It is a requirement of the clauses that you, as purchaser, also pay an equivalent sum into a trust account.

Too often vendors delete these general conditions because they are inconvenient.  We recommend that purchasers insist that these conditions remain. Ultimately the cost of trying to recover a few thousand dollars after settlement is rarely viable – so without these clauses the purchaser is quite vulnerable.

The above provisions apply in Victoria.  However, Queensland and New South Wales have similar provisions.  That is, the vendor is obliged to deliver the property in the same condition, there is an opportunity for a pre-settlement inspection and issues can arise when the vendor doesn’t leave the property in reasonable condition.

However, I don’t believe that Queensland and New South Wales have a general condition that allows money to be withheld at settlement if there is an issue.  For that reason, I would add the following sentence to the above recommended special condition:

“If the Vendor is in breach of this special condition then the Purchaser may withhold at settlement the reasonable cost of any required repair or works.”

Naturally, if purchasing in other states you should seek specific advice from a local solicitor.

 

(With thanks to Russell Sparke of Sparke Legal for his comments in relation to Queensland).

 

Profile photo of Lewis O'Brien

By Lewis O'Brien

If you’re in need of an expert commercial lawyer with a special niche in real estate then look no further than Lewis O’Brien. With more than 20 years professional experience, Lewis is known for his practical and commonsense problem-solving advice in not only overcoming issues, but preventing them in the first place.

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