Who is Legally Responsible If You Find Property Defects After Settlement?

Legal responsibility for property defects after settlement in Australia usually rests with the buyer under caveat emptor. Vendors remain liable when they conceal defects, make false statements, or breach Section 32 disclosures. Builders may hold liability for structural defects within 10 years under statutory warranties.

Read on to learn more about navigating property defects in Victoria after the deal is done.

The Starting Point: Caveat Emptor

Victorian property law has long operated on the principle of caveat emptor — Latin for “let the buyer beware.” Under this principle, the general rule is that once settlement has occurred, the buyer accepts the property in the condition it was in at the time of purchase.

This means that, as a general rule, a vendor is not required to disclose every defect in a property, and a buyer who discovers a problem after settlement cannot simply demand the vendor fix it or compensate them.

However, caveat emptor is not absolute. There are important exceptions — created by statute, contract, and general law — that may entitle you to a remedy even after keys have changed hands.

The Key Distinction: Patent vs Latent Defects

A patent defect is one that would be discovered by a reasonable buyer exercising ordinary care during inspection — for example, obvious cracking in walls or a clearly leaking tap. A latent defect is one that is hidden and would not be discoverable through reasonable inspection — for example, termite damage concealed beneath cladding, or a drainage problem buried underground. The law treats these two categories very differently.

When Can You Pursue the Vendor?

There are several legal pathways through which a buyer may have recourse against a vendor after settlement. Whether any of them apply will depend on the specific facts of your situation.

1. Fraudulent or Negligent Misrepresentation

If the vendor (or their agent) made a false statement about the property — either knowing it was false, or without taking reasonable care to check its accuracy — and you relied on that statement in deciding to purchase, you may have a claim in misrepresentation.

Common examples in Victoria include:

• A vendor who claims there are “no issues with drainage” when they are aware of recurring flooding
• An agent who describes a garage as “approved” when no building permit was ever obtained
• A vendor who states that all renovations were done “with council approval” when they were not

A successful misrepresentation claim may allow you to rescind the contract (in limited circumstances) or claim damages for the loss suffered.

2. Active Concealment of a Defect

Caveat emptor does not protect a vendor who actively conceals a defect. If a vendor takes deliberate steps to hide a problem — for example, painting over mould, placing furniture over cracked foundations, or filling in a sinkhole before inspections — a court may find they have engaged in fraudulent concealment, which gives rise to a claim despite the general “buyer beware” rule.

The threshold here is high. A vendor who simply fails to mention a defect (without active concealment) is generally not liable under this principle. The conduct must be intentional and designed to deceive.

3. Breach of the Vendor’s Statement (Section 32)

Victoria is one of the few Australian states that legally requires a vendor to provide a Vendor’s Statement (under section 32 of the Sale of Land Act 1962) before a buyer signs a contract. This statement must disclose a range of matters including:

• Title details and any encumbrances or restrictions on the land
• Outgoings such as rates and levies
• Building permits issued in the past seven years
• Any notices or orders issued by a council or government authority affecting the property
• Details of any owners corporation (formerly body corporate)
• Zoning information and planning overlays

If the Section 32 statement contains false or misleading information, or omits information that was required to be disclosed, a buyer may have grounds to take legal action. In some cases, a buyer can rescind the contract even after settlement if the omission or misstatement was material.

Important: Building Permits in the Last Seven Years

A common and significant issue is undisclosed building works. Under the Sale of Land Act, vendors must disclose building permits issued in the last seven years. If work was done without a permit — or a permit was obtained but the work was never inspected or certified — this can affect the property’s compliance with building regulations and may give rise to obligations on the buyer to rectify the work.

4. Statutory Warranties Under the Domestic Building Contracts Act

If the property is newly built or substantially renovated, the builder (not the vendor) may still owe you statutory warranties under the Domestic Building Contracts Act 1995 (Vic). These warranties require that building work is carried out in a proper and workmanlike manner, using suitable materials, and in accordance with all laws and permits.

Where structural defects emerge within ten years of the completion of building work, you may have a claim against the builder under the Act. This is separate from any claim against the vendor.

In addition, builders in Victoria are required to take out domestic building insurance (DBI, formerly known as builders warranty insurance) for residential projects over $16,000. If the builder becomes insolvent, disappears, or dies, the insurer steps in to cover certain defect claims.

5. Contract Warranties and Special Conditions

Your contract of sale may include specific warranties or representations made by the vendor about the property. If such a warranty is breached, you may have a contractual remedy regardless of the general caveat emptor principle.

It is worth having your conveyancer carefully review any special conditions in the contract before you sign, as some conditions are designed to protect the vendor and limit your rights. Others — if properly negotiated — can offer you meaningful protection.

What About Building and Pest Inspections?

A pre-purchase building and pest inspection is not a legal requirement in Victoria, but it is strongly advisable. If you chose not to obtain one — or if you relied on an inspection that failed to identify a defect — there are important consequences.

If You Did Not Get an Inspection

A buyer who purchases “as is” without a building inspection is generally taken to have accepted the property in its visible condition. Courts may be unsympathetic to a buyer who complains about a patent defect they could have discovered through reasonable due diligence.

If Your Inspector Missed the Defect

Building inspectors owe a duty of care to the buyer who engaged them. If an inspector negligently failed to identify a defect that a competent inspector should have found, the inspector (or their professional indemnity insurer) may be liable for your loss. Always ensure your inspector is licensed under the Building Act 1993 (Vic) and carries appropriate insurance.

The Role of Consumer Law

The Australian Consumer Law (ACL), which applies nationally, may also be relevant in some property transactions. In particular, the prohibition on misleading or deceptive conduct can apply to false representations made during the sale process — whether by a vendor, a real estate agent, or a property developer.

The ACL is particularly relevant when purchasing from a property developer or in an off-the-plan transaction, where the developer is selling in the course of a business. In private sales between non-commercial parties, the ACL may have more limited application, but the prohibition on misleading conduct can still arise.

What Should You Do If You Discover a Defect?

If you discover a defect after settlement, there are several steps to take promptly:

1. Document everything immediately: Take dated photographs and video footage of the defect. If the defect is worsening (such as active water ingress), document it at multiple points in time.
2. Obtain a qualified assessment: Have a licensed builder, engineer, or specialist trade assess the defect. You will need a written report to support any legal claim.
3. Review your contract and Section 32: Check what was represented or disclosed about the property. Look for any warranty provisions, special conditions, or statements that may be relevant.
4. Check building permit history: Contact your local council to request a building permit history for the property. If unapproved works are discovered, this can be highly relevant to your legal position.
5. Act promptly: Time limits (known as limitation periods) apply to legal claims in Victoria. Generally, a claim must be brought within six years of the date the loss was suffered or discovered. Do not delay in seeking advice.
6. Seek legal advice: Engage a conveyancer or property lawyer to assess your options. The strength of your claim will depend on the specific facts and available evidence.

What If the Defect Affects Structural Safety?

If the defect poses an immediate risk to safety — for example, structural failure, faulty gas fittings, or serious electrical issues — do not wait to pursue a legal claim. Contact the relevant authority or a licensed tradesperson immediately to make the property safe.

In Victoria, you can also contact the Victorian Building Authority (VBA) if you believe building work does not comply with the Building Regulations 2018. The VBA has investigative powers and can compel rectification work in appropriate cases.

A Summary: Who Bears Responsibility?

The table below summarises the general position on who may be liable depending on the nature of the defect and the circumstances of the sale:

Note: This table provides general guidance only. Every transaction is different. Seek specific legal advice for your circumstances.

The Bottom Line: Prevention Is Far Better Than Cure

Once settlement has occurred, the legal position becomes significantly more complex and expensive to resolve. The best protection against post-settlement defect disputes is thorough due diligence before you sign.

This means commissioning a professional building and pest inspection, carefully reviewing the Section 32 Vendor’s Statement and asking your conveyancer to flag any unusual special conditions..

For your conveyancing needs and concerns, don’t hesitate to contact us on 03 8456 6797 or submit a contact form using this link.