The decision of Garrett v Elim House Pty Ltd  VCAT 1862 highlights the limitations of pest and building reports or (pre-purchase inspection reports), especially when the inspection is visual only and for a house that is tenanted and heavily furnished.
This case involved the purchase of a 100-year-old timber house for $172,000 in 2014. Prior to purchasing the property, the purchasers had obtained a pest and building report from Mr Ford, a registered builder and director of Elim House Pty Ltd (Elim), the company that prepared the report, for a cost of $500.
Shortly after purchasing the property, the owners found termites in the property and some structural problems. They engaged another builder to remedy the problem, but the builder could not quote to fix the issues and instead recommended that they demolish the property. Naturally, the purchasers sought recourse from the pest and building inspector.
In seeking recourse from the company and the inspector, Mr Ford, personally, the purchasers asserted that they selected the company to perform the inspection based on representations made on the company’s website and that they purchased the house relying on the report.
The purchasers argued that the website and report were both misleading and that the company failed to provide its inspection services with due care and skill in accordance with s 60 of the Australian Consumer Law.
Section 18 (1) of the Australian Consumer Law provides that a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
Section 60 of the Australian Consumer Law provides that if a person supplies, in trade or commerce, services to a consumer, there is a guarantee that the services will be rendered with due care and skill.
The purchasers asserted that at the time of Mr Ford’s inspection, there were termites in the house and the house had major structural issues, including the floors being seriously out of level. They argued that Mr Ford failed to tell them that the house had termites and major structural issues including subsidence.
The Garretts claimed damages of $344,528 for the demolition of the house and the construction of a new house. Alternatively, they sought orders that Elim repair the house to a fit and proper condition.
The Tribunal found that the company’s representations on their website that its report would find any hidden problem and that they used a high level of technology that set Elim apart from its competitors, to be misleading.
The Tribunal found that Elim did not have reasonable grounds for making the representations, which was relied upon by the purchasers before ordering the report.
The Tribunal found that the purchasers suffered loss and damage as a result of the representations and were entitled to a refund of the $500 that they paid for the company’s services. Mr Ford was also held to be personally liable because he was knowingly concerned in the company’s conduct.
The Tribunal found that the report was not misleading or deceptive, as all the report said, was that in the areas that could be accessed – which was limited to the areas that could be seen and did not include all perimeters of the rooms and subfloor – no termites could be seen. The tribunal was satisfied that this statement was accurate.
Further reports obtained by the purchasers after they had purchased the property which found evidence of terminates were not comparable, as they were invasive and destructive investigations in an empty house. The conditions were very different from those provided to Mr Ford when preparing his report, and in that regard Elim’s report was clearly limited.
The Tribunal found this to be an “apple/oranges comparison”, and stated:
67. I find that Mr Ford did not fail to use reasonable care and skill in inspecting the property without inspecting areas that he could not access and only doing a visual inspection. Again, the Elim report made clear that Mr Ford did a visual inspection of areas that he could access and clearly set out the limitations of the inspection.
68. Further, I find that the Elim report made 3 references to the possibility of termites being found in the future when the Garretts carried out their proposed renovations. The Elim report made this clear in its statement about the subfloor area and the roof space. It also made it clear in its conclusion on pest activity. It stated it was reasonable to assume that there may be timber decay from both native borer and termites found as part of future renovation work.
69. Shortly after Mr Ford sent Mrs Garrett the Elim report Mr Garrett emailed Mr Ford about specific issues in the report. Mr Garrett did not ask any questions about termites or question the report’s statements about the possibility of termites being found during the Garretts’ proposed renovations. Although the statements in the Elim report were qualified, the Garretts did not ask Mr Ford to return to the property and carry out a more detailed inspection.
With regards to the structural issues:
169. I am satisfied that the Elim report clearly set out the condition of the 100-year-old property and reported on various issues that were observed by Mr Ford. I have found that the Elim report set out the limitations of Mr Ford’s inspection. The report made clear that Mr Ford was only carrying out a visual inspection. It also noted areas which he was unable to access.
170. I find that the Garretts failed to address Mr Ford’s email dated 11 July 2014, notifying them of various issues with the property, including the sloping floors and the floors being out of alignment. I find that the Garretts also failed to take into account the limitations and disclaimers set out in the Elim report.
171. I find that at the time Mrs Garrett signed the contract of sale she was on notice that Mr Ford had only carried out a visual inspection and did not access all areas of the property. I find that Mrs Garrett was on notice that Mr Ford’s inspection did not uncover hidden defects that he could not see.
Ultimately, the Tribunal was not satisfied that the purchasers suffered any loss or damage in Mrs Garrett purchasing the property, arising from Mr Ford’s conduct, the Elim website or the report.
This decision emphasises the limitations of many pre-purchase inspection reports that are often obtained by purchasers before buying a property. These reports often contain various limitations and disclaimers throughout the contents of these reports which should be read carefully, as they will qualify the comments and opinions given in the report and often limit the liability of the company making the report.
As most of these reports are not invasive and based on visual inspections only, care should be taken when a house is occupied with tenants and heavily furnished, as this can also limit the accuracy of the report. Where possible, a purchaser should consider requesting a more invasive report, although it is unlikely that a vendor will agree, given that this will often involve damage being caused to the property.
If you have received a pre-purchase inspection report which you consider falls short of the standard that was represented when engaging their services, either through their website or other means, this should be raised with the pest and building inspector so that they are given an opportunity to address these concerns. If appropriate, you should consider asked the inspector to attend the property to undertake a more detailed inspection.
Author: Cristian Fuenzalida