In New South Wales (NSW), Australia, the right to a final inspection before settling on a house or apartment purchase is an important legal right that is afforded to buyers. This right allows buyers to inspect the property they are purchasing one last time before the settlement is completed to ensure that the property is in the same condition as it was when the contract was exchanged, and that all fixtures and fittings are still in place.

Where does the buyer’s right to final inspection originate?

The right to final inspection in NSW is enshrined in the standard Contract for the Sale and Purchase of Land 2022 edition (standard contract) and is regulated by the Conveyancing Act 1919 (NSW) and the Conveyancing (Sale of Land) Regulation 2017 (NSW). Clause 12.3 of the standard contract states that “The Vendor must do everything reasonable to enable the purchaser, subject to the rights of any tenant, to make 1 inspection of the property in the 3 days before a time appointed for completion”.

Furthermore, once contracts for the sale of land are exchanged, the buyer acquires an equitable interest in the property they have agreed to purchase. This legal principle is derived from the doctrine of equity, which is a branch of law that seeks to provide fairness and justice where the common law may fall short.

Why conduct a final inspection?

The purpose of the final inspection is to ensure that the property is in the same condition as it was when the contract was exchanged, and that any fixtures and fittings that were included in the sale are still in place. If the buyer identifies any issues during the final inspection, they have the right to raise these with the seller and negotiate a resolution.

From a legal perspective, the right to final inspection is important because it provides a level of protection to home buyers. This is because it allows buyers to identify any issues with the property before they take ownership, and to negotiate a resolution with the seller. This could include seeking a reduction in the purchase price, or requesting that the seller address any issues before settlement.

How does an equitable interest in property impact the vendor (seller)?

Equitable interest refers to an interest in property that is recognized by equity, but not by the common law. In the context of property transactions, it means that the buyer has a right to the property that is not yet legal, but is enforceable through equity. This right is created once contracts for the sale of land are exchanged, even though the transfer of legal ownership does not occur until settlement.

The legal principle of equitable interest derives from the equitable doctrine of specific performance. This doctrine provides that a court may compel a party to perform a specific obligation, such as transferring ownership of a property, if it is deemed to be equitable to do so. In the context of property transactions, this means that if a buyer has a valid equitable interest in a property, a court may compel the vendor to transfer legal ownership of the property to the buyer.

For the buyer, acquiring an equitable interest in a property means that they have a legally enforceable right to the property. This means that the vendor cannot sell the property to anyone else or make any changes to the property that would affect its value or condition without the buyer's consent. Additionally, if the vendor breaches the contract, the buyer may be entitled to specific performance, damages, or both.

For the vendor, the existence of an equitable interest means that they must take care to ensure that the property is maintained and that any changes are agreed upon with the buyer. Additionally, if the vendor breaches the contract, they may be held liable for damages or specific performance. This means that if they fail to complete the sale, they may be compelled by a court to do so, and may also be required to pay damages to the buyer.

Conclusion

The legal principle of equitable interest, combined with the purchaser’s rights under contract compel the vendor to keep the property in the same condition at settlement as it was at the date of exchange. Purchasers should exercise their right to final inspection to ensure that any damages to the property are addressed prior to any monies changing hands.

*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice before taking any course of action.*