Vendor’s Warranties

by | Oct 18, 2010 | General property Law, Sale and Purchase

The warranty was that “all obligations under the Building Act 1991 were fully complied with” as at the date possession was granted.  Although the warranty only applied if the vendor had done works, a recent case has shown that the reach of the warranty may be further than people had expected.

The Court of Appeal recently considered the matter.  The case mainly focused on limitation periods but at the core of the course of action was the proposal that the vendor had breached this broad warranty.

While they owned the property the vendor had completed works.  After they had sold the property it transpired that the building was leaky.  The Courts determined that a breach of warranty could occur irrespective of the fact that a code compliance certificate had issued.  The breach occurred because the building work had not been performed in compliance with the Building Act.

The Council was sued for negligence but likewise, the owner was sued for breach of warranty.

Both the High Court and the Court of Appeal examined the law relating to limitation periods.  The fundamental question was whether the relevant limitation period commenced when the works were carried out or when the warranty was given.  If the period began when the works were undertaken the action would be statute-barred.  Not so if the time period started when the warranty was given.

The decision was made that the limitation period began at the time the agreement for sale and purchase was entered into and as a result the warranty given.

Lessons to learn:

• Between 1999 and 2006 vendors gave broad warranties that all obligations imposed under the Building Act 1991 were fully complied with.
• The issue of a code compliance certificate does not of itself fully satisfy the warranty.
• The time period during which a person can sue for breach of warranty is 10 years from the date the warranty is given, not 10 years from the date the work was completed.

Although not considered by the case presumably the same result would occur if the plaintiff had relied on the vendor’s warranty that “the works were completed in accordance with that permit or consent”.  That warranty remains in the standard form agreement.

By Debra Dorrington