This article was written by Nancy Wang Pricipal Solicitor and Grace Blake Solicitor at W & G Lawyers.
Most residential contracts signed in Queensland are “subject to building and pest”. Buyers often see the condition as a safety net that lets them walk away if the inspection turns up anything they do not like; sellers often assume it lets the buyer walk away for almost nothing. Neither view is quite right. The condition has its own mechanics, its own deadlines and a requirement that the buyer act reasonably. This article explains in general terms how it works, what a report may and may not tell you, and where the line could fall when a report reveals only minor issues.
Where the condition comes from
The building and pest condition is a standard term of the contract jointly published by the Real Estate Institute of Queensland and the Queensland Law Society, rather than a “special condition” added by the parties. Since 1 August 2025 the previous house and unit contracts have been consolidated into a single Contract for the Sale and Purchase of Residential Real Estate, in which the building and pest condition appears at clause 4.2.
The condition generally only operates if an Inspection Date has been inserted in the Reference Schedule at the front of the contract. If that box is left blank, there may be no building and pest condition at all. In practice the Inspection Date is usually set 7, 14 or 21 days after the contract date.
The clause makes the contract conditional on the buyer obtaining, by the Inspection Date, a written building report and a written pest report (which may be a single combined report) “on terms satisfactory to the Buyer”. Both reports are expected to come from appropriately licensed inspectors. A report from a friend who happens to be a tradesperson, or from an unlicensed operator, may not satisfy the clause and could be risky to rely on.
What the buyer needs to do before the deadline
Two obligations in the clause are often overlooked.
First, the buyer is required to take all reasonable steps to obtain the reports. This is a positive obligation, not simply a right. A buyer who does not book an inspection, books it too late, or lets the Inspection Date pass and then claims the condition has “failed” may be found to be in breach of the contract rather than protected by it. Inspections should be booked as soon as the contract is signed. For its part, the seller is generally required to allow the buyer’s inspector access to the property after reasonable notice.
Second, the buyer must give the seller written notice by 5pm on the Inspection Date, stating either that a satisfactory report has not been obtained and the buyer terminates, or that the condition is satisfied or waived. If no notice is given by 5pm, the seller may be entitled to terminate the contract. If you want to negotiate over the report, the safest course is usually to obtain a written extension of the Inspection Date before the deadline. A letter saying “we are satisfied provided the seller fixes the deck” may be treated as neither a termination nor a satisfaction, and could leave you exposed.
What a report does, and does not, cover
A pre-purchase inspection is a visual, non-invasive inspection of the accessible parts of the building, usually carried out in accordance with the relevant Australian Standards. Inspectors generally report on the structure, roofing, subfloor, moisture and rising damp, evidence of timber pests including termite damage, and conditions that could attract termites. They typically do not test electrical wiring, plumbing or drainage, appliances, pool compliance or air-conditioning, and they cannot report on areas they cannot reach or see. If those matters concern you, separate specialist reports may be needed, but a poor specialist report may not by itself support termination under this condition, which is confined to building and pest reports. Any wider due diligence right generally needs to be negotiated as a special condition before the contract is signed.
One further point is worth emphasising because it is new. Since 1 August 2025 sellers have been required to give buyers a seller disclosure statement and prescribed certificates before the contract is signed. That statement covers matters such as title, encumbrances, zoning, notices and rates. It does not cover the physical condition of the building, structural soundness, pests or flooding, and the form itself warns buyers to make their own enquiries. The building and pest condition therefore remains the buyer’s main protection against buying a home with problems.
The test: “satisfactory to the buyer”, but “acting reasonably”
The clause makes the condition depend on reports being satisfactory to the buyer, but adds that in terminating “the Buyer must act reasonably”. Both parts matter.
The Queensland wording is different from the standard contracts used in some other states, which may only allow a buyer to terminate for a “major” or “structural” defect. The Queensland test is not that demanding. Nor, however, is it a matter of the buyer’s personal whim. The question is likely to be whether a reasonable buyer in your position, paying this price for a home of this age, having seen what was visible at the open home and reading this report, could regard the report as unsatisfactory and choose to terminate. Relevant factors may include the age of the property, the nature and severity of what the report identifies, whether the problem was obvious when you inspected or was disclosed before contract, whether it is active (for example live termites) or historical and treated, and the likely cost of rectification compared with the price.
Two cautions apply. First, this is a contractual standard, not a fixed rule of law, and a special condition in your particular contract could raise or lower it; always check the contract you actually signed. Second, the courts have not yet spelled out precisely where the line falls for this clause, so a buyer considering terminating on marginal grounds should obtain advice before doing so.
Minor defects: where the line may fall
At the two ends of the spectrum the position is reasonably clear. A report disclosing active termite infestation, significant untreated termite damage, structural movement, extensive water ingress or seriously non-compliant structural work would generally be expected to justify termination. On the other hand, a buyer who seeks to terminate because of general deterioration consistent with the age of the property, ordinary wear and tear, weathering, cosmetic cracking, cleanliness, a cracked tile, a dripping tap or a fence that was plainly in the same state at the open home is unlikely to be regarded as acting reasonably. Those matters were, or arguably should have been, factored into the offer, and the same may apply to a defect the seller disclosed before contract or that was obvious on inspection.
The difficult cases lie in the middle, and two points are often misunderstood.
The first is that a defect does not necessarily need to be structural or “major” to make a report reasonably unsatisfactory. An unrepaired roof leak, evidence of past termite activity with no treatment history, inadequate subfloor ventilation with high moisture readings, or a non-compliant balustrade on an elevated deck could each support a reasonable decision to terminate, particularly where the cost of fixing the problem is significant compared with the price.
The second is the long list of individually minor items. Whether a number of small defects can add up to an unsatisfactory report has not been settled. In our view the sensible approach is to read the report as a whole, recognising that this cuts both ways. For an older Queenslander, a report listing twenty maintenance items is more or less what a reasonable buyer should expect and is unlikely to justify termination on its own. A recently renovated property marketed as such, where the report reveals a pattern of poor workmanship, or a list of items whose combined cost is well beyond anything the buyer could reasonably have anticipated, may be a different matter.
Because the answer depends on the facts, the evidence matters. If you intend to terminate on the strength of the report, the report itself should support that decision: the seller may ask for a copy of each report after termination, and that is how the reasonableness of your decision is likely to be tested. Where the inspector’s findings are cautious or qualified, a further specialist inspection or a written repair quote obtained before the Inspection Date could be the difference between a defensible termination and a dispute. A buyer whose real motivation is second thoughts, a change in finances or a better property elsewhere, and who relies on a report listing hairline cracks as the justification, may find that the condition offers less protection than expected.
Your options if the report is unsatisfactory
A buyer who is reasonably dissatisfied generally has three practical choices, and all three are governed by the 5pm deadline.
You may terminate by written notice before 5pm on the Inspection Date. The notice should be clear and unconditional and, although the clause does not strictly require reasons, it is usually sensible to identify the matters in the report relied upon. If the termination is valid, you should be entitled to a refund of your deposit.
You may negotiate a price reduction reflecting the estimated cost of repairs, or ask the seller to rectify specific defects before settlement. The seller is under no obligation to agree to either. Any agreement should be recorded in writing, with repairs tied to a pre-settlement inspection, and the Inspection Date should be extended in writing so that the deadline does not pass during the negotiation.
You may accept the report and notify the seller that the condition is satisfied or waived, in which case you take the property in its reported condition.
What could go wrong
A termination that is not supported by a reasonable dissatisfaction with the report may not be treated as a termination at all. Instead, the seller may be entitled to treat the buyer as having walked away from the contract. The deposit could then be at risk, the seller may be able to claim any shortfall on a resale together with other losses, or the seller could seek to hold the buyer to the contract. Because the buyer is the one asserting that the condition allowed them to terminate, the buyer is likely to bear the practical burden of showing that the decision was reasonable, which is not a burden to take on lightly over a report listing cosmetic items.
If you are the seller
A seller who receives a termination notice is not without options. You may ask for copies of the reports and have them reviewed against the standard described above, and you should check that the notice was given by 5pm on the Inspection Date, in writing and in clear terms; a late or ambiguous notice may be ineffective, and may instead give you your own right to terminate. A seller who has given the buyer’s inspector reasonable access is generally in a stronger position than one who has not.
A seller who believes a termination was unreasonable should nevertheless proceed carefully. Disputes over deposits can be expensive, the outcome tends to turn on evidence about the property, and a seller who wrongly rejects a valid termination could end up in breach themselves. Sellers may also reduce the risk before contract: a pre-sale building and pest report, disclosure of known defects up front and a price that reflects them can make it much harder for a buyer to describe those matters as unsatisfactory later.
How W & G Lawyers can help
Whether you are buying your first home, purchasing an investment property or selling, the building and pest condition is often where a residential contract succeeds or fails. If you would like advice on a contract before you sign, on whether a report may entitle you to terminate, or on responding to a buyer’s termination, our property team would be pleased to assist.
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Disclaimer
The article published by W & G Lawyers is intended to provide general information only and does not constitute legal advice on any subject matter. By accessing or reading this article, the reader acknowledges that no solicitor–client relationship is created between the reader and W & G Lawyers.
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