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The Importance of Due Diligence When Purchasing a Property

By 15 January 2024Property Law
The Importance of Due Diligence When Purchasing a Property

Buying a property is one of the biggest investment decisions a person will make during their lifetime. That’s why it’s important to be as thorough as possible before signing a contract of sale. One of the most crucial aspects of a property transaction for a buyer is doing the appropriate due diligence on the soundness of the structure, its history and its compliance with local planning requirements to ensure the planned purchase is a safe and sensible one.

In this article we’ll take a closer look at the key things to consider in conducting due diligence on a property, including building and pest inspection by a licensed inspector, certifying the property’s structures, and checking whether local council town planning impacts the property in any way.

The advice and guidance of an experienced property solicitor is always highly advised before entering an agreement to purchase a property.

Building and pest inspections

A common misconception among buyers is that relying on a building and pest inspection report commissioned by the seller is sufficient before proceeding to sale. In fact, it is crucial for buyers to obtain an independent assessment from a qualified inspector to make sure the property is in good condition. A licensed professional inspector will review the structure and surrounding landscape for structural defects, water damage or other potential problems.

In Queensland, contracts for the sale of property generally include a building and pest inspection clause, allowing the buyer to access the property to have it checked by a licensed inspector who will produce a building and pest inspection report. This clause makes the sale of the property ‘subject to’ the contents of the report, allowing the buyer to cancel the contract and retain their deposit if they are not satisfied with what the report finds.

Under a standard REIQ contract, the buyer has until 5pm on the date nominated in the contract relating to the building and pest inspection to advise the seller whether they are satisfied or not with the inspections. If notice is not forthcoming from the buyer by this deadline, the seller has a right to terminate the contract.

A buyer is also entitled to raise with the seller any issues from the inspection with a view to negotiating either for work to be done to rectify any problems and/or a potential reduction in the purchase price of the property.

Choosing an experienced, licensed inspector

Selecting the right inspector is as crucial as the inspection itself. Buyers should look for inspectors who are licensed, experienced, and reputable in the industry. Seeking referrals from family or friends who have undergone a similar process can provide valuable insights into the inspector’s reliability and thoroughness.

A good inspector not only identifies existing issues but can also offer insights into the property’s long-term maintenance needs. They should provide a comprehensive report covering structural integrity, potential pest issues, and other factors that may affect the property’s value and habitability.

Most building and pest inspectors will not confirm whether the smoke alarms installed in the residence are compliant with the current legislation.  You may need to engage a licensed electrician to attend and inspect the property to determine if the smoke alarms are compliant.  There is provision in the standard REIQ contract to allow access to the property for such an inspection.

Certification of structures to ensure structural integrity

Beyond the initial inspection, buyers should insist on obtaining documentation confirming the final certification of structures on the property. This certification verifies that the construction complies with all relevant building codes and regulations.

Buyers should be particularly vigilant in cases where renovations or extensions have been undertaken in recent years. Unapproved structures can lead to legal complications, and buyers may find themselves facing unexpected costs to rectify structures that are non-compliant with local building regulations.

An experienced solicitor will conduct searches with council to verify that improvements to the property are council approved and final inspections were issued. These searches may be conducted at the time of other searches such as property title, survey plan, rates and land tax searches.

Limited town planning checks to discover potential pitfalls

While a comprehensive town planning assessment is beyond the scope of a typical property purchase, conducting limited checks is a prudent measure. A buyer’s solicitor will generally conduct this search and provide a summary of the provisions of the planning scheme and any designations relevant to the property, such as infrastructure charges levied by the local council for the provision of essential services and facilities.

Being aware of whether these fees and charges are outstanding at the time of purchase is an important part of the due diligence process to ensure a buyer doesn’t incur substantial liabilities on assuming ownership of the property.

These checks should encompass potential town planning restrictions or proposed changes to zoning regulations in the area which may impact on the property’s use, potential for future development, and overall value. Engaging with local planning authorities or hiring a town planning consultant can provide valuable insights into the property’s planning history and any potential red flags.

Contact our experienced team for more information

Due diligence is not only an inherent part of residential property contracts in Queensland but a commonsense practice to ensure a buyer is fully informed before making such a significant investment.

While there is initial excitement at finding the perfect property, buyers must resist the urge to expedite the process at the cost of due diligence. A thorough investigation, coupled with the guidance of our expert team at Delaney & Delaney, empowers you to mitigate risks and enter the contract of sale with confidence that you have done everything possible to understand the property’s condition, compliance with relevant council regulations and building codes, and potential for future or other uses.