When Cosmetic Complaints Become Contractual Leverage: The Limits of the Building Report Condition
At Goodwill Law, we are seeing an increasing number of transactions where purchasers obtain a building report, identify relatively minor cosmetic issues, and then seek compensation or remedial works under the building report condition.
Although negotiation is a normal feature of property transactions, reliance on the building report clause to leverage cosmetic matters is frequently misconceived — particularly under the ADLS/REINZ Agreement for Sale and Purchase (Eleventh Edition).
The clause has defined limits. Appreciating those limits — and the strict requirements for valid reliance — is essential before taking steps that may carry contractual consequences.
The Building Report Condition Is Not a Repair Mechanism
Clause 9.4 provides that the agreement is conditional upon the purchaser obtaining a building report that is satisfactory to the purchaser on the basis of an objective assessment.
Two safeguards are built into that wording:
The purchaser’s satisfaction must be objectively justifiable; and
The report must be prepared in accordance with accepted principles and methods.
The clause does not give the purchaser a right to demand repairs.
It does not entitle the purchaser to cosmetic improvements.
It does not create a mechanism for price renegotiation.
If the condition is not fulfilled, the purchaser may avoid the agreement under clause 9.10(5). But that right to “walk away” is strictly subject to the purchaser satisfying the contractual terms of the condition.
The right is not unfettered.
“Walk Away” Means Strict Compliance
There is a common misconception that the building report clause allows a purchaser to withdraw simply because they are unhappy with what the report says.
That is incorrect.
The clause requires:
A report prepared by a suitably qualified inspector;
Prepared in accordance with accepted principles and methods;
Satisfaction assessed objectively.
The purchaser must demonstrate that a reasonable purchaser, relying on a properly prepared report, would be dissatisfied with the condition of the buildings and improvements.
Unless those elements are satisfied, the condition has not failed — and the right to avoid does not arise.
An invalid avoidance may itself constitute repudiation.
Cosmetic Wear Is Not “Condition” in the Contractual Sense
Most residential properties will have:
Minor plaster cracking
Aged sealant
Surface paint wear
General deferred maintenance
Loose fittings
These matters are usually categorised in building reports as:
Cosmetic issues
Minor defects
Maintenance items
They do not ordinarily amount to structural defects, safety concerns, or material failures.
The contractual question is not whether defects exist — they almost always do.
The question is whether the matters identified justify objective dissatisfaction with the building’s condition.
Minor cosmetic wear rarely meets that threshold.
The Importance of “Accepted Principles and Methods”
Clause 9.4(2) requires the report to be prepared in accordance with accepted principles and methods.
This is a crucial safeguard.
In practice, accepted methodology (including standards such as NZS 4306 for residential inspections) requires inspectors to:
Conduct non-invasive visual inspections
Clearly distinguish between cosmetic, maintenance and structural issues
Categorise defect severity
Avoid speculative or alarmist commentary
If a report elevates cosmetic wear into material defect without proper categorisation, or uses disproportionate language unsupported by findings, that may be open to challenge.
The clause ensures that dissatisfaction must be grounded in recognised inspection standards — not aesthetic preference or exaggerated caution.
Commercial Negotiation vs Contractual Entitlement
It is entirely open to parties to negotiate.
A vendor may choose to agree to a modest credit to secure certainty. A purchaser may seek a price adjustment rather than withdraw.
That is a commercial decision.
But it is important to distinguish between:
A negotiated compromise; and
A legal entitlement under clause 9.4.
The building report condition is designed to protect purchasers from material building risk — not to fine-tune presentation.
The Risk of Tactical Reliance
Where a purchaser seeks to rely solely on cosmetic issues to avoid the agreement:
The avoidance may be invalid;
The vendor may treat the contract as repudiated;
The deposit (if any) may be at risk;
Further damages may be claimed.
Because the clause imposes objective standards and methodological safeguards, the right to withdraw is narrower than is sometimes assumed.
A Balanced Perspective
As market conditions fluctuate, building reports are sometimes used as leverage in negotiations.
But the contractual framework remains unchanged.
Clause 9.4 contains deliberate protections to ensure that only genuine concerns about the condition of the buildings justify dissatisfaction.
Cosmetic wear — without more — is unlikely to meet that standard.
If you are navigating a building report dispute — whether as vendor or purchaser — Goodwill Law can assist you to assess your position carefully and strategically before taking steps that may carry unintended legal consequences.
This article is provided for general information purposes only and does not constitute legal advice. Specific advice should be sought in relation to your particular circumstances.