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Try before you buy

5 December 2016

Ten years ago Jo and Ian bought a section on which they built their dream home. They used high end quality materials throughout. Jo and Ian having recently retired decided that it was time to downsize and move to a “lock up and leave” apartment in the city. They placed their property on the market and were pleased to receive an unconditional offer after only a few weeks of marketing.

The day before the settlement date the purchasers carried out a pre-settlement inspection of the property. Jo and Ian were informed by the agent that the purchasers had tried to turn the spa bath on in the bathroom but it did not work. The spa bath had not been used for many years and Jo and Ian thought that it was perhaps the spa pump that needed to be replaced.

Jo immediately called a plumber to inspect the spa bath. Following the plumber’s investigation Jo and Ian learnt that the whole spa mechanism needed to be replaced and that it would not be possible to have the repair work completed by the settlement day. The plumber was concerned that damage to the tiles around the spa bath would be unavoidable and as the same tiles were no longer available, the bathroom floor and walls would also need to be re-tiled.

The agreement did not mention the spa bath and an argument ensued between the vendor’s and purchaser’s lawyers. Was the spa bath a fixture subject to an implied warranty that the property included a working spa bath or was it a chattel subject to vendor warranties that chattels are to be in “reasonable working order.” To avoid the stress and additional legal expense Jo and Ian agreed to a compromise with the purchaser to reduce the sale price by way of compensation.

The standard chattels listed in the list agreement are typically the stove, fixed floor coverings, blinds, curtains and light fittings but may also include other items. Chattels and other equipment providing services to the property such as underfloor heating, air conditioning and security systems are now all subject to vendor warranties. Such items are to be in reasonable working order at settlement (fair wear and tear excepted). If any item is not working on the settlement date, it does not give the purchaser the right to cancel the agreement but it may create a right to compensation.

We recommend that vendors carefully check that the chattels listed in the agreement are to be included in the sale and that they are in working order. A vendor should rectify any fault with the chattels and equipment or disclose to a purchaser that certain items are not working and record these as being sold “as is” in the agreement.

The distinction between a fixture and a chattel can often be cloudy. Accordingly, Vendors need to be sure that if there are any items that they intend to not form part of the sale, for example, an expensive bespoke wardrobe that might appear to be a fixture and usually included in a sale but which is in fact a freestanding removable chattel, that it is expressly excluded in the contract. To avoid such an argument it is desirable to have a reasonably comprehensive list of items included or excluded.

It is also recommended that purchasers engage a building inspector to undertake a building report on a property. Purchasers could also ask if the building inspector would test applicable chattels and equipment. It is far better to negotiate and resolve an issue before an agreement is declared unconditional rather than at the pre-inspection stage which is much later, usually being a day or so before settlement.

Source: InBrief Summer 2016

InBrief Summer 2016

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