GTodd Law

News / Blog

July 2014


GTODD LAW - Queenstown Property Lawyers - Thu, 24 July 2014

The importance of obtaining pre-purchase reports in the name of the actual purchaser or party that may seek to rely on them.

In a recent High Court case (Body Corporate 90315 v Redican Allwood) the Court held that a building inspection report could not be relied on by a purchaser company in circumstances where the report was addressed to an individual who subsequently formed and nominated the company to complete the purchase.

The High Court held that it was not sufficient that the nominee company was effectively the alter ego of the individual who obtained the report and that the nominee company was formed for what appeared to be the exclusive purpose of purchasing the property on behalf of that individual. There was still not a sufficient relationship between the individual and the company for the company to be able to rely on the report. The Court suggested that in order to ensure protection to the company, the individual could have commissioned a second report in the name of the company (presumably at a discounted price).

The case highlights the effectiveness of disclaimer provisions. The Court placed high emphasis on the fact that the building inspection report stated that it could not be relied on by third parties. This was effective to preclude any reliance by the company. If a report expressly limits the liability of the entity that is responsible for its production (as is commonly found in building inspection reports, registered valuations and LIMs) this will limit the ability of a purchaser to rely on that report.

The case demonstrates the importance for real estate agents and conveyancing professionals to ensure that pre-purchase reports are obtained in the name of the actual purchaser and to obtain fresh reports where a nominee is appointed to complete a purchase.

In particular, agents should not suggest to purchasers that they can rely on LIMs etc that are not addressed to the eventual purchaser.

 

The facts of Body Corporate 90315 v Redican Allwood Ltd

Ms Patchett entered into an agreement to purchase an apartment situated in a complex in Newtown, Wellington. Prior to confirming the contract Ms Patchett acquired the services of a building inspection company, RealSure Limited, to provide a report on the apartment.  The terms of engagement sent to Ms Patchett by RealSure and the final report contained a disclaimer statement that the report was confidential and could not be relied on by third parties. Such a disclaimer is commonly found in building inspection reports, registered valuations and on LIMs. Upon obtaining the report Ms Patchett confirmed the purchase contract as unconditional. Four weeks later Ms Patchett formed a company called Rastros Limited and nominated Rastros to complete the purchase of the apartment.  

It transpired that the building containing the apartment had issues with leaking. 24 unit owners and the body corporate filed a negligence claim against those responsible for the construction of the building and the city council. The city council in turn sought a claim against RealSure (in effect making the case on behalf of Rastros) on the grounds of negligence and breach of the Fair Trading Act.

In assessing the council’s claim the High Court found that RealSure could not be held liable for Rastros’s loss because the building inspection report was addressed to Ms Patchett and not to Rastros.

The Court held that Rastros could not claim against RealSure for negligence. The existence of the disclaimer, stating that no third party could rely on the report, meant that RealSure would not have foreseen and could not be said to have ought to have foreseen that Rastros (which was considered by the Court to be a third party) would rely on the report. Therefore there was no duty of care and there could be no negligence. The fact that there was no contractual relationship between RealSure and Rastros significantly influenced the Court’s finding on this matter. 

The Court further held that no claim could be brought under the Fair Trading Act because the disclaimer given by RealSure precluded Rastros from being able to assert any reliance on the report. 

The Court found that by issuing the disclaimer, RealSure expressly excluded liability to anyone except Ms Patchett. Nothing done by RealSure could be said to constitute an assumption of responsibility to Rastros. 

Real estate agents and conveyancing professionals need to exert caution as similar principles are likely to apply in relation to LIM’s and other pre-purchase reports that are attained for due diligence purposes.

Should you require clarification of the implications of this case please feel free to contact us:

 

Graeme Todd

 (03) 441 2743

(027) 438 3597

graeme@gtoddlaw.com

 

Katharine Pfeffer

(03) 441 2743

katharine@gtoddlaw.com