Building Defects After a Property Inspection: What to Do | NZ Legal

You have found a property you want to buy, gone conditional, and commissioned a building inspection. The report comes back — and it is not clean. Perhaps there is a note about moisture in the cladding, a comment about subfloor ventilation, or a list of items the inspector has flagged as requiring “further investigation.” Now you need to decide what to do with that information before your due diligence deadline expires.

This guide explains how to read what your inspector is actually telling you, what your legal options are during the conditional period, how to use the findings in a negotiation, and — if you have already settled — what you can do if defects surface after the fact.

How to Read a Building Inspection Report

A licensed building practitioner or registered building surveyor will typically classify defects across two or three priority tiers. The exact language varies between inspectors, but the structure is consistent.

Immediate action / urgent items are defects that pose a safety risk, are actively getting worse, or require remediation before the building can be occupied safely. Examples include live electrical hazards, active water ingress, structural cracks in load-bearing elements, and non-compliant gas installations.

Short-term items are defects that are not immediately dangerous but will deteriorate and become costly if left unaddressed within the next one to three years. Blocked or cracked downpipes, failing sealants around joinery, minor subfloor moisture, and aging hot water cylinders typically sit here.

Maintenance items are things that every property of that age and type will show — cosmetic wear, minor weathering, items approaching end of useful life. These are not grounds to renegotiate unless you are buying a property that was marketed as recently renovated or in excellent condition.

Your Legal Position During the Conditional Period

Most residential sale and purchase agreements in New Zealand include a builder’s report condition, a general due diligence condition, or both. Under the standard REINZ ADLS form, these conditions entitle you to commission an inspection and, if the results are unsatisfactory, to cancel the contract and recover your deposit in full — provided you act within the condition period and give written notice on time.

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The condition period is your legal window to act. Once you declare unconditional, every defect in that report becomes your problem and your cost — regardless of when you discovered it.

“Unsatisfactory” is not defined in the agreement, and courts have interpreted it broadly. You do not need to find a structural defect to cancel on a builder’s report condition. What you need is a genuine, honestly held view that the result of the inspection is unsatisfactory to you as buyer. That said, using a minor maintenance list to extract a large price reduction — then settling anyway — is a different thing and creates its own legal and ethical risk.

The smarter approach is to categorise what you have found, get specialist quotes where the report recommends further investigation, and then decide whether to negotiate or exit.

Categorising What You Have Found

Defect category	Typical examples	Recommended response
Minor / maintenance	Peeling paint, stiff doors, worn weatherstripping, aging carpet	Accept as priced in, or use to anchor a modest price reduction
Significant	Failing roof flashings, subfloor moisture above acceptable limits, plumbing leaks, inadequate insulation	Obtain specialist quotes. Negotiate a price reduction equal to remediation cost, or require vendor to fix before settlement
Serious / specialist	Weathertightness risk, suspected leaky cladding, foundation movement, structural framing damage, unconsented work	Commission a specialist report immediately. Do not go unconditional until scope and cost are fully understood. Consider whether to exit
Unconsented work	Additions or alterations without building consent or Code Compliance Certificate	Search council records. Quantify the cost of regularisation or removal. Factor bank lendability into your decision

Dealing with Significant Defects: Your Options

When the inspection returns findings that are more than cosmetic, you have four practical paths available to you during the conditional period.

1. Negotiate a Price Reduction

The most common outcome. You obtain a written quote from a contractor for the remediation work and present that figure to the vendor as the basis for a price reduction. The vendor can accept, counter, or decline. If they decline and the defect is material, you retain the right to cancel.

Getting a formal quote — not an estimate — matters here. A lawyer can help you frame the request in a way that is commercially reasonable and documented, which also protects you if the negotiation fails and you need to justify your cancellation.

2. Require Remedial Work Before Settlement

An alternative to a price reduction is to require the vendor to fix the defect prior to settlement. This approach carries risk: vendor-managed repairs are rarely done to the standard a buyer would choose, and disputes about whether the work has been completed satisfactorily can delay settlement. If you go down this path, the agreement should specify the standard required, who signs off on completion, and what happens if the work is not done on time.

3. Extend the Condition Period

If you need more time — because you are waiting on a specialist report, a contractor quote, or a council record search — you can ask the vendor for an extension of the condition period. Vendors are not obliged to agree, but most will where the request is reasonable and made early. Do not let the deadline expire while you are still gathering information.

4. Cancel the Contract

If the defects are serious enough that no price reduction would make the purchase viable, or if a specialist report confirms significant remediation costs, you can cancel under your builder’s report or due diligence condition and recover your deposit in full. Your lawyer should give the cancellation notice in writing before the condition deadline.

A Step-by-Step Process Once Your Report Arrives

1. Day 1

   Read the report in full

   Do not skim to the summary. Read every item flagged, note any recommendations for further investigation, and compile a list of everything in the urgent and short-term categories.

2. Days 1 to 2

   Send the report to your lawyer

   Your lawyer should review the report alongside the LIM and title. Some defects only become significant in combination — for example, unconsented work that is also shown on the LIM as a known issue is a different legal risk to unconsented work the council is unaware of.

3. Days 2 to 4

   Commission any specialist follow-up

   If the report recommends specialist investigation of weathertightness, foundations, roof framing, or electrical wiring, engage that specialist immediately. Do not wait until near the deadline. If the condition period is too short to complete the follow-up, ask your lawyer to request an extension from the vendor.

4. Days 3 to 5

   Obtain contractor quotes

   For significant but quantifiable defects, get at least one written trade quote covering scope and cost of remediation. This becomes the evidence base for any price reduction negotiation.

5. Days 5 to 8

   Decide and negotiate

   With the full picture in hand, decide whether to negotiate a price reduction, require remedial work, or exit. Your lawyer should handle the written communication with the vendor’s lawyer.

6. Before the condition deadline

   Give formal written notice

   Whether you are cancelling or declaring the condition satisfied, give written notice before the deadline. A verbal agreement to extend the deadline is not binding. Everything in writing, through your lawyer.

What You Can Do If Defects Surface After Settlement

The general rule in New Zealand residential property law is caveat emptor — buyer beware. Once you settle, you own the property with all its defects, unless you can bring yourself within one of a narrow set of exceptions.

Vendor misrepresentation. If the vendor (or their agent) made a statement before the agreement was signed that was false, and you relied on that statement in entering the contract, you may have a claim under the Contract and Commercial Law Act 2017. The classic example is a vendor who answers “no known issues” to a question about weathertightness, when council records show a prior repair. Misrepresentation claims require proof of the false statement, your reliance on it, and your resulting loss.

Breach of vendor warranty. The standard sale and purchase agreement includes warranties from the vendor — for example, that the vendor is not aware of any weathertightness or structural defects that have not been disclosed. If a defect existed and the vendor knew about it and did not disclose it, a warranty claim may be available. These claims are not straightforward and their value depends heavily on what the vendor actually knew and when.

Consumer Guarantees Act (new builds only). If you purchased a newly built home from a developer or builder acting in trade, the Consumer Guarantees Act 1993 implies guarantees of acceptable quality and fitness for purpose. These cannot be contracted out of in a residential context. A new build that develops significant defects within a reasonable period may give rise to a claim directly against the builder or developer.

Negligence against the inspector. If a qualified building inspector missed a defect that was reasonably discoverable on a competent visual inspection, a negligence claim against the inspector may be available. Most professional inspectors carry professional indemnity insurance. This is not a simple path — you will need expert evidence that a competent inspector would have identified the defect — but for large defects that were overlooked, it is worth exploring.

Checklist: Before You Go Unconditional

Building defect due diligence checklist

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1. Builder’s report received and read in full, not just the summary.
2. All urgent and short-term items listed and categorised.
3. Report shared with your lawyer and reviewed alongside the LIM.
4. Any specialist investigation recommended by the inspector has been commissioned and results received.
5. Written trade quotes obtained for all significant defects.
6. Council records searched for building consents and Code Compliance Certificates covering all additions and alterations.
7. Any price reduction or remedial work agreed with the vendor confirmed in writing through your lawyers.
8. Condition deadline confirmed — not yet expired, or formally extended in writing.
9. Bank has confirmed they are satisfied with the property in its current state (particularly relevant where significant defects exist).
10. You and your lawyer are both satisfied that any remaining known defects are acceptable at the agreed price.

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What It Costs

Talk to a Lawyer Before Your Deadline Expires

A builder’s report with significant findings is not the end of the road — but it does require a clear head and fast action. The condition period is finite, specialist reports take time, and vendors will not always extend without pressure.

NZ Legal works with residential buyers through exactly this process. We review your inspection report alongside the LIM and title, advise on what your findings mean for your legal position, handle the negotiation with the vendor’s lawyer, and ensure you do not let a deadline slip while the picture is still unclear.

If your report has come back and you are not sure what to do next, contact NZ Legal now — before your condition period expires.

Sources

1. Building Act 2004Governs building consents, Code Compliance Certificates, and unconsented work obligations.
2. REINZ ADLS Agreement for Sale and Purchase of Real Estate, 10th EditionStandard NZ residential sale and purchase agreement, including builder's report and general due diligence conditions.
3. Contract and Commercial Law Act 2017Misrepresentation, cancellation, and damages remedies for pre-contractual conduct.
4. Consumer Guarantees Act 1993Implied guarantees for new residential builds, including fitness for purpose.
5. Property Law Act 2007Vendor warranties, cancellation, and remedies on default.