Why the seller’s condition disclosure means nothing
A disgruntled purchaser recently phoned John Graham from property inspection company, HouseCheck, to complain about the condition disclosure document. Estate agents make sellers sign this document which, according to the buyer, is of little use because it often contradicts the sales contract.
Graham says he was not surprised by the buyer’s statement as he recently heard of a seller who had stated in the seller’s disclosure he was not aware of any damp, despite the fact that there was a large damp area which was plainly visible on one wall for all to see. The seller had ticked every one of the many defect categories in the condition disclosure, indicating that he was not aware of any defects in the property.
This buyer was upset about the blatant contradiction; the seller had indicated in writing that he was not aware of any damp – but the damp and blistering paintwork was plainly visible.
The buyer demanded that the seller repair the damp. But the seller denied liability saying that the property condition disclosure contained a disclaimer which said: “This report does not constitute a guarantee and/or warranty of any kind or nature by the owner of the property or by the property practitioners.” The seller said he was, therefore, not liable to honour any guarantee.
Secondly, said this seller, the sale agreement contained a clause that the seller would not be liable for any patent and visible defects.
Third, the purchaser had an obvious responsibility to make a thorough inspection of the property before committing to the purchase.
The seller refused to compensate the buyer.
Graham says that just recently an attorney told of a similar dispute. This time the seller was an old woman who was selling her property due to the recent death of her husband. The husband had looked after the house and she was not up to speed on the condition of the property.
She therefore completed the property condition report by indicating that she was not aware of any defects in the roof, the plumbing and electrical systems. As far as she was aware, everything was working perfectly well.
However, the buyer later discovered that the geyser had a leak. The leaking water was discharging unseen via the overflow system onto the roof. Although the buyer didn’t expect the elderly widow to personally climb into the roof cavity to check the geyser, he complained that someone should have known about it.
Somebody, he said, needed to take responsibility for the problem. How could she say there were no problems? What would have happened if the geyser had burst and flooded the lounge?
An internet search will reveal many other examples of buyers complaining about unsatisfactory experiences resulting from sellers’ mandatory condition disclosures. These unhappy sagas sometimes become costly and time-consuming voetstoots disputes, which may land up in court if the parties have deep pockets and are sufficiently angry.
A dispute over voetstoots leaves the buyer with the extremely difficult task of proving that the seller was aware of the hidden defect and intended to defraud the buyer. In most court cases the unhappy buyer is unable to prove the buyer’s prior knowledge or motives and is unsuccessful in a claim for damages for hidden defects.
Graham says that judging by many of the complaints to HouseCheck it is obvious that that the seller’s condition disclosure is a fairly ineffectual document.
Worse, says Graham, the sellers’ disclosure gives buyers a false sense of security. There are many instances where the seller ignores the seriousness of the document and hurriedly ticks every defect category stating that he is not aware, anxious to get the sales process underway.
“What is the point of asking most sellers to state whether there are any defects in the roof?” asks Graham. “Most people would simply say they are not aware of any defects, because in most cases they simply just do not know. Even if there were very serious defects in the roof, the seller may genuinely and in good faith, believe that there were none.”
Most South African property transactions lack the component of a professional inspection report, and this has resulted in many disputes which have reached the High Court.
The best known case is that of Van der Merwe vs Meades, where the seller employed a professional engineer to fix the roof in preparation for selling the property. After the engineer had completed the repairs for which he was paid, he told the seller that the roof had been completely restored. The seller accepted this fact at face value and accordingly stated that she was no longer aware of any defects; this because she had been assured by a professional engineer that all the problems had been repaired.
However, it emerged that the engineer had in fact not properly repaired the roof and the roof still remained defective. Because the buyer could not prove that the seller was aware of any defect (she thought the engineer had repaired the roof), the buyer had to bear the cost of having the roof repaired a second time – and probably all the legal costs to boot!
HouseCheck says that buyers and estate agents should consider most sellers are not qualified to comment on whether or not a geyser is working properly, whether or not the roof structure is in good condition, and whether or not the property is encroaching over the boundary line.
Sellers may also be tempted to misrepresent the condition of the property, relying on the fact that they are laymen, not professionals. Even those diligent sellers who want to make a completely honest and full disclosure may not be able to do so because the seller is probably not sufficiently qualified to comment on the technicalities in the building.
It should also be remembered that the standard seller’s condition disclosure document clearly states that it is not a guarantee. There is also a contradiction if the sale agreement imposes other conditions – such as the seller not being liable for any latent and/or patent defects. Clear conditions in the sale agreement will usually take preference and override the seller’s condition disclosure statement.
“What good then is the seller’s condition disclosure document – other than to confuse and mislead the purchaser?” asks Graham. “What should an agent advise a buyer who wants assurances regarding the condition of the second-hand house that he wishes to purchase?
“Agents should remember that there are already various independent experts who issue certificates regarding the safety of the property. These are the Electrical Certificate of Compliance, a Gas Certificate of Conformity, a Plumbing Certificate in Cape Town and now an Electric Fence Certificate. It is intended that these certificates are issued by qualified experts, who are thoroughly independent of the seller and upon whom the purchaser may rely on. Generally, though not always, the purchaser should be able to count on being protected by these reports.”
The CPA conflict
Regarding the condition of the remainder of the house, agents, sellers and buyers are left with the following unsatisfactory options.
- Selling the second-hand property voetstoots (“as is”). From the seller’s point of view, it is perfectly fair and reasonable that the seller should not be made liable for any defects that he is not actually aware of. Most purchasers would agree it is unfair and unrealistic to expect a seller to personally climb into the roof in order to try and decide whether not the roof and/or geyser is defective or not. On the other hand, why should a purchaser’s claim for compensation for defects only arise if the purchaser is able to succeed in the very difficult and costly process of proving that the seller acted fraudulently?
- Secondly, the Immovable Property Condition Report. A purchaser may believe that he can insist on receiving a report before he submits an offer to purchase; but actually, legally, he cannot. The property condition report came into being as a sop to the new consumer regime at the instance of the Estate Agency Affairs Board. When motivating the introduction of this document on 31 March 2011, the board stated that “professional estate agents should be required to play an active role in the effective implementation of the new consumer protection regime”. However, in the case of the sale of second-hand houses, it appears that both the seller and an estate agent cannot be compelled to issue any Property Condition Report due to the fact that the estate agents and second-hand house owner/sellers are not subject to the provisions of the Consumer Protection Act (CPA). This is because an intermediary, who represents another for gain, would be governed by the CPA, provided that their activities, as an intermediary, are not regulated by other national legislation. But, as an estate agent’s activities are governed by other national legislation in the form of the Estate Agency Affairs Act 1997 together with the Estate Agents Code, it is quite clear that estate agents as well as Section 27 of the CPA (which is the source of the requirement that an intermediary issues a disclosure in the form of the Immovable Property Condition Report) are excluded from provisions of and by the CPA.
In essence, as estate agents are not covered by the CPA, there is no legal basis to compel anybody to issue a Property Condition Report. In any event, calling for a Property Condition Report would not give the purchaser absolute certainty: particularly if the document itself says, it is not to be construed as a guarantee and/or warranty. Besides, for the reasons mentioned above, it has on numerous occasions proved to be half baked and unreliable.
The only solution is for the industry to recognise and call for independent property surveyors to provide a detailed analysis and report of every facet of the property before the property is advertised for sale. As the seller is already paying for the numerous obligatory Certificates of Compliance for the benefit of the purchaser, the purchaser should compensate the seller for the cost of commissioning the report, whilst the seller pays for the cost of whatever repairs may be recommended by the survey report.
Who is John Graham?
John Graham is a South African who has spent more than 30 years in the property industry. He has hands-on experience as a developer, investor, estate agent, home builder and property inspector. John is the founder and CEO of HouseCheck and the principal of the SA Home Inspection Training Academy. He is the author of a number of popular eBooks including: The South African Home Buyer’s Guide; Quality Control for South African Home Building and The Complete Guide to South African Home Inspection.