BUYERS, DO YOU NEED A “GOOD WORKING ORDER CLAUSE” ADDED TO YOUR CONTRACT?

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BUYERS, DO YOU NEED A “GOOD WORKING ORDER CLAUSE” ADDED TO YOUR CONTRACT?

You can imagine the situation: you buy a house, get your keys, and move all of your things in only to find that the air conditioning is faulty, a toilet doesn’t flush, or there is a leak below the kitchen sink. Your dream home suddenly loses its charm and your excitement turns into a feeling of being ripped off, or even foolish. How can you protect yourself from the extra expense and trouble of unexpected repairs when buying a home?

Even if a seller acts in good faith, needed repairs can be missed, or forgotten about. The emotional toll and anxiety involved with trying to sort out these repairs can take the joy out of the purchase, and add a heavy weight to the whole experience – not to mention the cost. The best way to avoid this situation is to include a “good working order clause” to your home buying agreement.

Property is usually sold “as presented.” This means that, unless there are amendments within your Contract Agreement, anything that is wrong with the house you buy becomes your responsibility from the moment of possession or settlement. Most of the time, this isn’t a problem, but with a purchase of this size, it is best to protect yourself from unexpected costs and anxiety.

We don’t usually go around a home open checking if the toilet flushes or the oven works. Most of us are not qualified to check if electrical or plumbing systems are in good order. A good way for us to protect ourselves when purchasing a home, is to have a “good working order” clause added to the contract.

This clause is intended to ensure that all gas, electrical and plumbing fixtures and fittings are in good working order for the buyer at settlement. The wording of the clause differs with every real estate agency, but it is usually a representation or warranty provided by the seller.

If this clause is added to a contract, the seller will also disclose on the contract if any specific items covered with this clause are not in working order, so that the buyer accepts these items will not be fixed or repaired. This not only removes the surprise – and the feeling of making a bad purchase – but it also allows the buyer to plan for any repairs, setting aside the time and the money to fix what needs to be set right. Buying a home is already a big decision with lots of emotional weight; this clause can reduce that, and increase the sense of control.

In a standard contract, buyers are entitled to complete a final inspection of the property within the 7 days prior to the due settlement date. In the busy time prior to a purchase and a move, this is sometimes neglected, but it is a very important step. Whilst completing the inspection, I recommend buyers thoroughly check all items covered by the good working order clause, to make sure everything is working. Flush toilets, check the air-con, oven etc. Don’t rush yourself. Set aside enough time to be thorough and methodical. After all, purchasing that house represents a lot of your hard earned time and money.

The sellers’ settlement agent will remind them to double-check the house and to make all required repairs prior to the final inspection. After all, they are most motivated in that week before the due settlement date, and therefore most likely to get repairs done quickly to ensure the sale goes through quickly and without any trouble.

Ideally, when you show up to inspect the property, they will already have set everything right, or will be able to tell you if anything is still in need of repair. There is nothing worse than having to sort things at the last moment, whilst surrounded by boxes and stressed about the final stages of moving.

So, you’ve included the good working order clause, inspected the property, and you still find something that needs repair. Usually this is something the seller does not use often, has forgotten about, and will be cursing themselves for missing… After all, sellers will usually attend to all repairs prior to settlement, because not doing so makes them look bad and might complicate a sale. Still, it happens. So what should you do if an item in your new home is discovered not working?

Contracts should include “the 2018 Joint Form of General Conditions.” This states that a buyer is entitled to re-inspect the property to check that the seller has rectified any required repairs, but only if Notice is provided to the sellers. In other words, if your first inspection finds something wrong, you can serve a Notice that you will inspect it again to ensure that the repair work has been done. Easy, right?

Unfortunately, things are not always so simple. Sometimes, despite good intentions, a repair cannot be completed in time. This can be disappointing and frustrating for all parties, so to avoid heated or emotional negotiations between buyers and sellers, I recommend having the agent handle the negotiations. The agent will make sure to look after everyone’s interests and may even advise the seller regarding quotations for any required repairs. The quoted cost for the unfinished repairs will be compensated to the buyer at settlement.

Remember, as the buyer you have the hassle and risk of having the repairs completed after settlement, so sellers are generally generous with any agreed compensation. The seller can then move on with the moving process and know the issue is finalised for them. This can also benefit the buyer as you may decide to upgrade an item, such as a non-working oven and use the compensation towards the upgrade.

What happens if the repairs are not satisfactory or compensation cannot be agreed upon? Disputes between sellers and buyers sometimes occur due to non-repair of items. Unfortunately, in most instances a buyer does not have the right to terminate a contract or delay settlement in any way for the non-repair of items within this clause. If the buyer does delay settlement, the seller might be liable for compensation. If after settlement the seller has not completed any required repairs, the buyer may be able to apply for damages against the seller via the Magistrates Court of Western Australia.

But not to worry. A little care beforehand – and the inclusion of a good working order clause – will go a long way to making the purchase of your new home a positive experience.

5 Comments

  1. Louis says:

    Thanks for the great post

  2. Emily Bell says:

    Hi we have moved into our new house and did a final inspection but unfortunately missed a leaky hand held shower in the bathroom and extremely noisy fan when on high speed. Is it too bad for us or is there a ‘grace’ period after settlement when we can still have things fixed if wrong?

    • Sharon says:

      Hi Emily, thank you for contacting me. Every contract of sale is different and not all contracts have the “good working order clause” that I suggest within my article. I recommend you contact your settlement agent or lawyer about this as soon as possible for additional advice, as they have sighted your contract of sale and know your circumstances. In addition, you are welcome to phone me for advice. 08 9405 8327.

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