Mr and Mrs Balfour owned a home in Sydney. Before 1999 Mr Balfour identified some termite activity and arranged for pest treatment. Thereafter on three further occasions termite damage was identified and Mr Balfour took steps to repair and cover the damage.
In 2004 Mr and Mrs Balfour put their property on the market for sale. Mr and Mrs Wood agreed to buy it. Soon after completing the purchase Mr and Mrs Wood discovered the termite damage that had been covered and discovered extensive further termite damage in the property.
They sued a pest inspection company which had provided them with a report prior to exchanging contracts.
They then sought to sue Mr and Mrs Balfour claiming damages and alleging that Mr and Mrs Balfour had made a fraudulent representation (by not disclosing the previous work done) that there was no serious termite damage to the property.
The Court of Appeal found that by making their property available for inspection by prospective purchasers Mr and Mrs Balfour represented that they had not knowingly concealed any major termite damage which was not patent and which compromised the structural integrity of the property. Although the property did in fact have major termite damage Mr and Mrs Balfour were unaware of the extent of that damage when Mr Balfour did his work and when they sold the property and accordingly they did not act dishonestly. Mr and Mrs Wood's claim therefore failed.
The Contract of Sale between Mr and Mrs Balfour and Mr and Mrs Wood contained a special condition which is seen in most contracts which in short provided that the property was sold in its present state of repair and required that the purchasers acknowledged that they bought the property relying on their own inspection, knowledge and inquiries and that they did not rely on any warranties or representations made by or on behalf of the seller.
That condition however is not fool proof. In this case the court found that Mr and Mrs Balfour were unaware of the extent of the damage and that repair work they had carried out four years prior to sale had been done by way of repair and had been done in a manner which led them to believe that no more damage would be done.
A seller however can be liable to a purchaser in certain circumstances.
For example, a seller must not actively conceal defects in quality that would otherwise be patent as for example plastering up a defect in a wall and papering it.
Conduct calculated to mislead a purchaser regarding a material fact or to divert the purchaser from inspection or inquiry to discover a defect known to the vendor may be fraudulent.
A representation however in relation to a patent (obvious) defect may not be enough to escape a contract on the basis that a purchaser, because the defect was obvious, must be taken to have bought with notice of that defect.
It would be an unusual house that didn't require repair work. Normally that repair work is obvious. Sometimes a seller is aware of defects in a home which cannot be established by the usual inquiries. Sellers of homes should understand that hiding a defect and hoping that no-one discovers it may lead to litigation.
The process of preparing a house for sale is, or should be, a process into which time and money is put. If there are defects that are not obvious then they should preferably be rectified. If they are obvious, then it is important that sellers do not make any representations or do anything which might be considered to be deceptive, dishonest, or fraudulent.
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