Problems with a property, such as a faulty hot water system, should be dealt with before settlement.

Why 10 days grace may not mean what you think it does

The Joint Form of General Conditions refers to a 10-day “claim for compensation” period – but it’s unwise to rely on this when it comes to reporting faults in a property.

Rather, buyers should thoroughly inspect the property and ensure that any problems are dealt with before settlement. However, a recent settlement case has highlighted how confusion over the “claim for compensation” period can lead to disputes and disappointment after settlement is over.

In this case, Mr Yen*, a buyer, was undertaking a final inspection when he discovered the hot water system was not working.  The seller’s agent assured him that it would probably be fixed by settlement, and that even if it wasn’t, Mr Yen would have a ‘ten days grace’ period after settlement to report problems with the property.

Section 15.3 of the Joint Form of General Conditions specifies that if there has been “an error or misdescription of the Property in the Contract” the buyer is entitled to compensation if they notify the seller within 10 business days after settlement.

Assured by this, Mr Yen went through with the property transaction.

On moving into the property, Mr Yen contacted the seller to report that the hot water system was still not working. Despite being within ten days of settlement, the seller refused to pay compensation, insisting that it had not been faulty when it was in her possession.

Disappointed, Mr Yen contacted us. But with settlement over, there was little we could do but inform Mr Yen that if the seller refused to pay, his remaining option was to take legal action.

With the costs of legal action likely outweighing the cost of repairing the hot water system, it’s likely that Mr Yen will choose to pay for repair himself, or to seek answers from the real estate agent who suggested that faults could be dealt with after settlement.

The best time to address problems with a property is before settlement. By addressing problems at the appropriate time, and keeping the settlement agent in the loop, you can pave the way for a smooth and dispute-free settlement.

(* Mr Yen’s details have been changed.)

Image by VeloBusDriver via Flickr.

[info_box]Update: Legal advice provided to the settlement industry has revealed that Section 15 of the Joint Form of General Conditions has a very limited scope. Read Have you misinterpreted the 10 days grace clause? for more info. [/info_box]