A final occupation certificate has long been thought to give peace of mind to purchasers of dwellings, however a recent court of appeal case held that a final occupation certificate cannot be relied upon.

 The Case

The Purchasers entered into a contract with the Vendor (owner-builder) to purchase a substantially renovated house in Wahroonga, NSW.

The Vendor engaged Ku-ring-gi Council to certify a two-level extension at the back of the existing house as well as an engineering firm to prepare structural drawings. The Council issued a Final Occupation Certificate despite the building work having significant defects and not complying with the engineer’s structural drawings or the approved plans and specifications.

The purchasers subsequently bought the property. They obtained a building inspection report before doing so which only identified some minor defects.

The Law

The contract for sale of land contained the common special condition in which the purchasers acknowledged that they were purchasing the property subject to “all defects latent or patent”, and as a result of their “own inquiries and inspections and not as a result of any representations made by or on behalf of the vendors”.

The special condition did not prevent them from pursuing the owner-builder Vendor for breach of statutory warranties under the Home Building Act.

The Purchasers brought an action against the Vendor for breach of statutory warranties contained in the Home Building Act. They also claimed against council for breach of their common law duty of care in issuing a final occupation certificate despite the significant defects.

The Decision

The Primary Judge’s Decision

The Purchasers claim against the Vendor for breach of statutory warranties was successful. The structural defects totalled $467,448 and the remaining non-structural latent defects totalled $125,110. The vendor was not held liable for the purchasers’ relocation and accommodation costs. The court further held the vendor was entitled to an indemnity from the council for his liability to the purchasers for rectifying the structural defects ($467,448) but not the remaining latent defects ($125,110).

The primary judge also found that the council was liable in negligence, determining that it owed the Purchasers a duty to take care in issuing the occupation certificate. The primary judge reasoned that:

1. The Purchasers relied on the council to exercise care in issuing the occupation certificate
2. The council knew of the likelihood of that reliance
3. The known reliance was sufficient to make the purchasers “vulnerable” and unable to protect themselves.

Council Appealed against this decision.

The Court of Appeal Decision

The Appeal found in favour of the Council.

The court reasoned that in order to prove the council owed a duty of care t The Purchasers must demonstrate that they were “vulnerable” and unable to protect themselves from the loss that they suffered. The Court found that the Purchasers were not vulnerable because they:

1. Had the benefit of the Vendor’s statutory warranties as an owner-builder under the Home Building Act;
2. Had the benefit of insurance of $300,000 against the vendor’s insolvency;
3. Had the opportunity to negotiate the terms of the contract to protect themselves against the risk of economic loss presented by latent defects.

In order to provide the best possible service to their clients the Property Law team at Duffy Elliott Lawyers endeavours to stay up to date with the latest legal decisions. If you are looking for someone to assist you with a sale or purchase of real property give our office a call on 6841 4300.