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Purchasing second hand residential property in Queensland with existing defects

The purchase of an existing residential property is for most people the most expensive purchase they will make in their lifetime.

What happens if the building contains undiscovered defects? Can a subsequent purchaser make a claim for loss against the original builder?

The Queensland Court of Appeal has recently held that builders only owe a duty of care to subsequent purchasers of property for building defects in limited circumstances.[1]

Background – Raymond v Lewis

A house was constructed by the builder in 2005. The builder then sold it to Mr King.

Eleven years later, in 2017, Mr King offered the property for sale by public auction.

Ms Lewis was interested in the property and inspected the property twice prior to the auction. Ms Lewis held no building qualifications, nor was physically capable of undertaking a complete inspection to discover any problems.

Prior to and at the auction, Ms Lewis was in possession of a building and pest inspection report for the property. The reports were commissioned and obtained by the seller.

The building report identified minor defects “generally of an ongoing maintenance nature” and “not affecting overall functionality of the residence”, but noted some inaccessible areas. The pest report was limited and noted no visible indicators or damage from a visual and non-invasive inspection concerning termite damage.

Relying on those reports, Ms Lewis was not concerned about the integrity and soundness of the property. Ms Lewis did not obtain her own independent building and pest inspection reports as she did not think she needed to as the seller’s reports suggested to her there were no major defects and she believed and trusted the reports were done properly.

Ms Lewis proceeded with purchasing the property at the auction for $1.6 million as, on all fronts, it was a well-built property. It was Ms Lewis’ first home purchase.

A short time after moving into the property, building defects with the construction of the property were discovered when Ms Lewis sought to get a routine pest treatment done. A building report subsequently obtained showed, firstly, defects to the floor members and supports. Secondly, defects associated with the props and joists used to support the driveway and garage floor and because of termite entry and rot at the end of the timber joists. Ms Lewis’ evidence was that she would not have purchased the property had she been aware of these defects.

It was accepted that the defects identified by Ms Lewis were defects that occurred during the construction of the dwelling, with no competing or intervening events.

First Instance

Ms Lewis sued Mr Raymond, the original builder, seeking to recover damages for loss arising out of the alleged negligent construction of the house in the Queensland District Court[2].

Ms Lewis was successful and the District Court of Queensland awarded damages for a considerable amount of $296,566.

The District Court held that the builder owed Ms Lewis a duty of care as a subsequent owner even in the absence of a contractual relationship. The builder was liable for damages for the building defects based on the principles approved by the High Court of Australia authority in Bryan v Maloney[3]. That case holds a builder owes a duty of care to a subsequent purchaser of a building in circumstances where it can be demonstrated by such purchasers that they relied on the skill of the builder, and they are vulnerable at the time of the purchase. Based on the facts above, the District Court found Ms Lewis had relied on the skill of the builder, and was a vulnerable purchaser.

Appeal

On Appeal, the builder challenged the District Court’s finding that he owed Ms Lewis a duty of care as a subsequent purchaser, and the findings concerning Ms Lewis’ vulnerability and reliance giving rise to the duty of care and liability.

The decision on appeal

The Appeal Court refined and reinforced the principle that a builder will not a owe a duty of care to a subsequent purchaser of a building unless there is relevant vulnerability on the part of the purchaser at the time of purchase.

The Appeal Court stated vulnerability will be present and will turn on the particular facts of a case, but will exist when a subsequent purchaser is incapable of protecting oneself from loss sustained as a result of defects in the building at the time of purchase. The nature and discoverability of the defects in the construction at the time of purchase will also be relevant to whether there is such incapacity on the part of the purchaser.[4]

The Appeal Court overturned the initial decision and found that the builder did not owe a duty of care to Ms Lewis and therefore was not liable for the damages claimed.

The Appeal Court held Ms Lewis’ evidence did not support and meet the relevant vulnerability test[5], nor the inference and findings that Ms Lewis relied on the builder of the subject property to have built the property free from defects.[6]

Takeaway

When considering the issues of vulnerability and reliance by a subsequent purchaser of property, a Court will look at various factors and the circumstances of the purchase in determining the issue including the nature and discoverability of the defects; the personal circumstances and characteristics of the parties; and the sophistication of the purchaser.

The decision limits, refines and lifts the bar regarding the circumstances in which defective building claims against original builders can be brought by subsequent purchasers of property for loss, however the decision does not rule out such claims entirely.

For more information or to discuss your circumstances, please contact our offices.

The content of this article is intended to provide a general guide to the subject matter. Specific advice should be sought about your specific circumstances.

[1] Raymond v Lewis [2024] QCA 43

[2] Lewis v Raymond – District Court at Brisbane 3425/18 – Unreported, 16 March 2023

[3] (1995) 182 CLR 609

[4] Raymond v Lewis [2024] QCA 43 at [42]

 

[5] Raymond v Lewis [2024] QCA 43 at [52][53]

[6] Raymond v Lewis [2024] QCA 43 at [57]

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