Compliance with building inspection rules: this concerns you closely

(Updated on February 13, 2012)

Building inspection is an essential step when purchasing a house. Since the entry into force of the new Real Estate Brokerage Act, you must, as stipulated in section 81 of the Regulation respecting brokerage requirements, professional conduct of brokers and advertising, ''recommend to the person proposing to acquire an immovable that the person have a full inspection performed by a professional or a building inspector who:

1° has professional liability insurance covering fault, error and
omission;

2° uses a recognized inspection service agreement;

3° performs inspections according to recognized building inspection standards; and

4° submits a written report to the party that requested the inspection services. ''

The broker or agency executive officer may also provide a list of professionals or building inspectors meeting the requirements.

YOUR RESPONSIBILITIES RELATING TO BUILDING INSPECTION

As a broker, you must know how to intervene in building inspection matters at each step of your transaction and in different cases.

Seven situations are presented below explaining your responsibilities when facing them. After reading these situations, you will be well equipped to inform and advise your clients in compliance with the Act.

The seven situations are:

• WHEN TAKING THE BROKERAGE CONTRACT
• WHEN MAKING THE PROMISE TO PURCHASE
• THE FOLLOW-UP OF THE BROKER AFTER INSPECTION
• THE BUYER WISHING TO CANCEL
• THE BUYER WISHING TO RE-NEGOTIATE THE CONDITIONS OF HIS PROMISE TO PURCHASE
• THE BUYER PURCHASING A BANK REPOSSESSION PROPERTY
• AN INSPECTION REPORT MADE PRIOR TO THE PROMISE TO PURCHASE

WHEN TAKING THE BROKERAGE CONTRACT

As soon as the brokerage contract is taken, the broker has an ethical obligation to undertake all steps to discover unfavourable factors related to the immovable.

Declarations by the Seller
To this end, the broker must recommend the use of the ''Declarations by the Seller of the immovable'' form. This form must be attached to the brokerage contract and to the promise to purchase, if applicable. It enables brokers, from the start, to obtain from sellers relevant information on the immovable. It can also avoid a lot of trouble for brokers because its goal is to avoid re-negotiations that might occur after discovering factors that were not reported or even the cancellation of the promise to purchase. Please note that as of July 1, 2012, the Declarations by the seller of the immovable form will constitute a mandatory annex to any brokerage contract concluded for the sale of a chiefly residential immovable of less than five dwellings.

Pre-sale inspection
A good practice that has long been taught is to recommend to the seller to conduct a pre-sale inspection by using the services of a building inspector. This inspection will enable him to have an idea about the state of his immovable before putting it on the market and to identify the necessary repairs. The broker should also inform the seller that the buyer will likely have the immovable inspected and that any repairs, which are not made by the seller in advance, will probably be raised again.

As the pre-purchase inspection, if the broker provides a list of inspectors, these inspectors must meet the four criteria set forth in section 81 (see above) and the list must contain many names.

In addition, the fact that the seller has obtained a pre-sale inspection report does not waive broker’s obligation to recommend to the buyer to conduct a pre-purchase inspection.

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WHEN MAKING THE PROMISE TO PURCHASE

Regulations make it mandatory for the broker to recommend to the buyer to inspect the immovable using the services of a professional or a building inspector who meets the requirements of section 81 mentioned above. The broker must also inform buyers that building inspection is not subject to any legal framework, which means that anyone can pretend to be a building inspector, without being subject to any rules whatsoever.

Despite the absence of a legal framework, the broker must submit only the name of inspectors who meet the requirements of section 81. If he chooses to provide a list of professionals or inspectors, it should contain more than one name.

Ensuring that the requirements are met
In order to ensure that inspectors identified on the list provided to buyers, meet the four requirements contained in section 81, the broker must first make a verification with these inspectors, and obtain a copy of the required documents (insurance proof, standards, agreement) that he will keep.

The broker must then obtain a written commitment from the selected persons under which they undertake to inform the broker if they are no longer able to meet the regulatory requirements. In addition, if the OACIQ concludes agreements, to this effect, with associations of inspectors or professional members of an order, the individual’s membership with these associations will be sufficient to ensure that the person meets the requirements of section 81 mentioned above. For this purpose, we encourage you to read the article entitled "Agreement concluded with the AIBQ: your access to a valuable reference tool for building inspection" on our website.

If you wish to submit the name of inspectors who are not members of a group or an association recognized by the OACIQ, here is what you actually need to do:

1. Liability insurance
2. A recognized inspection service agreement
3. Practice standards recognized by the OACIQ
4. A written report

1. Liability insurance
The brokers must ensure that the inspector or the professional has a valid ''error and omission'' insurance. Obtaining a written proof is the best way of checking this.

2. A recognized inspection service agreement
It is essential that the inspector specifies in an inspection service agreement the nature and the scope of inspection services that he offers and their cost. The buyer can then be aware of the limitations contained therein, for example, in terms of liability exclusion.

The broker will inform the buyer that he must provide the inspector with all necessary documents and information required for inspection that he has, namely the Declarations by the seller of the immovable form.

3. Practice standards recognized by the OACIQ
Recognized practice standards provide minimum guidelines for building inspection. They give a public character to the services provided by inspectors. They define some terms specific to building inspection and standardize the presentation of reports.

The OACIQ has recognized practice standards and they are available on the Organization’s website by selecting the article no. 13622.

4. A written report
After analyzing visual observations, the inspector must submit to the client a written report. The broker must inform the buyer that obtaining this written report is essential if he wishes to negotiate a price reduction or terminate his transaction. Obviously, a good practice necessitates monitoring the receipt of this report to ensure that deadlines are met.

If some elements, which were subject to inspection, are more serious or important, they should be clearly stated in the report. In addition, if certain findings require further testing, for example in terms of pyrite, the inspector should refer the buyer to the appropriate expert.

Is it possible for the real estate broker to pay the building inspector?
Because of the conflicts of interest that the payment of the fees of a professional by a broker may cause, this practice is not recommended.

Indeed, as part of a real estate transaction, the payment of the fees of a professional involved in the transaction by the broker may give the impression that the actions of this professional are influenced by the broker ''work provider''. This is because of the links existing between them. In case of a problem concerning the work of this professional, the parties involved in the transaction may believe, rightly or wrongly, that there is certain complicity between the broker who paid the fees and the professional who performed the work (the inspector in this case). Accordingly, the broker could be involved in a dispute that could have been avoided otherwise.

During inspection

Furthermore, at the time of inspection, the seller's broker must remain reserved and let the inspector do his work accompanied by his client who is the buyer who pays the inspector to obtain a complete and detailed inspection.

As for the buyer's broker, he should attend the inspection to be able to properly advise his client. It is also important that the buyer attends the inspection. In fact, the competent building inspector takes this opportunity to point out to the buyer some material elements that deserve attention and the necessary corrections that should be made, if applicable. These remarks must be part of the inspector’s written report.

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THE FOLLOW-UP OF THE BROKER AFTER INSPECTION

The practice of some brokers to make the buyer waive systematically the inspection condition should generally be avoided, and this should be either immediately after the inspection is completed or following the inspector’s verbal report or later. The purpose is to allow the buyer to carefully examine the report and obtain, if necessary, clarifications from the inspector or any other qualified person.

If special circumstances justify that the buyer shortens the deadline indicated in the inspection condition, the broker will ensure that the buyer has an excellent understanding of the elements mentioned in the report and that he is totally satisfied with them.

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THE BUYER WISHING TO CANCEL

It is primarily up to the buyer to assess the report of the building expert to see if it unveils the existence of factors that might affect the purchase of the property. If some clarifications on certain aspects of this report are needed, the buyer should contact his expert.

Cancelling the promise to purchase
If, according to the buyer’s opinion, such factors have been unveiled and that he is no longer interested in buying the immovable for this reason, he must under the generally used inspection clauses and within the specified time frame send a written notice to the seller accompanied by a copy of the inspection report. It is the receipt of such notice by the seller which will render the promise to purchase null and void.

Sending the notice
Therefore, it is important that the buyer keeps a receipt proving that the notice and the inspection report were received by the seller. Sometimes, following the inspection, the buyer send a copy of the inspection report to the seller, not for cancelling his promise to purchase, but simply to inform him of the problems unveiled by the inspection. Probably, the purpose of the buyer is to push the seller to make certain repairs or obtain a reduction of the selling price. The inspection report sent to the seller should be accompanied by a written statement clearly indicating the reasons why the report is sent and, if applicable, that the transmission of the report is not intended for cancelling the promise to purchase.

Acting in good faith
However, the buyer must act in good faith and he should not send a notice to the seller if the inspection report unveils only minor imperfections that have no real influence on the offered price. In other words, the inspection must not serve as a pretext to allow the buyer to withdraw without valid reason.

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THE BUYER WISHING TO RE-NEGOTIATE THE CONDITIONS OF HIS PROMISE TO PURCHASE

In the event where the buyer is willing to buy the immovable at a reduced price and that the seller is willing to grant him that:

• The broker must record this agreement in writing in the amendment form that will be signed by both parties.
• This amendment form will be an integral part of the promise to purchase and must be submitted to the lender.
• This form must then indicate that it is after inspection that the parties agreed to amend the promise to purchase and must be signed within the time period given to the inspection condition.

In fact, once the deadline is expired, this form condition ensures that the buyer is deemed to have waived it and failure to obtain an amendment, the buyer shall make the purchase according to the original terms of the promise to purchase.

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THE BUYER PURCHASING A BANK REPOSSESSION PROPERTY

Concerning bank repossession and waiving the legal warranty, the broker must, from the beginning, warn the buyer against this waiver and the impact on his future rights in the event any defect occurs after the purchase.

If a buyer still wishes to buy such immovable for which the legal warranty of quality was excluded, the broker must insist on the necessity of conducting a detailed pre-purchase inspection. The inspector must be informed of the exclusion of warranty. Generally, in terms of bank repossession, the broker must warn the buyer against the clauses contained in the forms of financial institutions that often provide strict deadlines that sometimes result in the loss of the amounts of money given as down payments.

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AN INSPECTION REPORT MADE PRIOR TO THE PROMISE TO PURCHASE

Sometimes, the seller may request that a first inspection report should be made in order to market the immovable. It can also be a report that has led to the cancellation of a first promise to purchase. The obligation is the same.

Sending the previous report
To avoid any interpretation by the broker, the best rule is to submit a copy of the report to the buyer. Indeed, some defects may seem minor for the broker who did not disclose them, but they can be important for the buyer. The remittance of the report avoids this kind of controversy. If it is impossible, the broker must inform the buyer about the existence and content of the report. 

The new Real Estate Brokerage Act provides a minimal supervision for building inspection, which is closely linked to any real estate transaction and crucial for public protection. By knowing your responsibilities in this field, you will ensure a smooth running of your transactions, and your clients will appreciate it!

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