Buying a property? Do your research to avoid unexpected costs

The recent tragic circumstances surrounding the Grenfell Tower fire in London have caused many people, governments and organisations to conduct audits on buildings which have recently been constructed to ensure they are safe and comply with relevant building codes.  Early reports after the Grenfell Tower fire indicated that the building was clad in highly combustible material.

Unfortunately, it appears that the problem of developers cutting corners may be widespread.

In Melbourne in 2014, the Lacrosse Building in Docklands caught fire which was accelerated by non-compliant aluminium cladding.  The fire caused around $6.5m in damage but the more costly bill is yet to come for the owners as there is now a building order in place that the cladding be removed, which may cost in excess of $8m.  The owners’ corporation and builder are attempting to negotiate a solution.

These incidents serve as a timely reminder for prospective purchasers of apartments to check the structural history of the building housing the apartment which they are about to purchase.  When you purchase an apartment, you also purchase a unit in the common property.  The common property will usually comprise the building itself and include the common areas such as lobbies, stairways and amenities such as common laundries or swimming pools.  If there is an issue which requires maintenance, repair or replacements to part of the common property, the owners corporation will need to pay for it.  That means increased owners corporation levies for the owners. In extreme examples (but examples which are becoming more common), the repair bill will be enormous.  And when bills edge into the hundreds of thousands or millions, getting the party at fault to indemnify the cost is likely to problematic and the owners corporation may be forced into expensive litigation.  In the meantime, if the owners can’t afford the cost of making the building compliant, they risk the local council making a demolition order.

There are similar risks in buying a house.  Recently, in Holbrook in NSW, many residents have become subject to a government buy-back and demolition scheme of their houses which in the 1960s and 70s were insulated with loose fill asbestos.  However, the problem for some is that the proposed compensation is unlikely to meet the costs of rebuilding or purchasing an alternative property.

In Victoria, domestic builder’s insurance is mandatory but only runs for 6 years for structural defects, and the insurance only covers situations where the builder has died, is bankrupt or has left the jurisdiction (and, in many cases, won’t cover multi-storey developments).  If the builder is still in business, the owner will need to claim against the builder in VCAT.   The limitation period for domestic building claims is 10 years so chances are, if the building is older than 10 years, you’ll be picking up the cost for any structural defects.

Old apartment buildings can also carry hidden costs.  For example, many buildings close to the bay experience concrete cancer and metal corrosion resulting in costly remedial works.

So what does this mean for you?  First, when buying a property, do your research.  Find out as much as you can about the construction of the property – when it was built, who performed the building works or renovations, whether the builder is still in business, etc.

For apartments, get a strata inspection report from a reputable company.  This will give you a summary of any significant decisions by the owners corporation regarding the building.  It may also be worth enquiring with the owners corporation whether it holds the construction documentation for the building.

And, if you can afford it, get a building inspection report before you buy.  A building inspection report by a reputable building inspector will identify any apparent structural issues.  If you are buying by private sale, it may be possible to make the contract conditional upon obtaining (and passing) a building inspection.  If buying at auction, you will probably have to obtain a report before auction day.

Buying a property is probably the biggest investment you will ever make.  Spending a little extra time researching it or extra money in obtaining a building inspection report may save you future heartache, thousands of dollars or even your life.