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Seller's Warranty in REIQ contracts in relation to contaminated land

The standard REIQ contracts contain certain warranties by the seller, most of which have accompanying termination rights in favour of the buyer if the seller breaches a warranty. For example, in clause 7.4(3)(a)(ii) of the REIQ contract for the sale of houses and land, the seller warrants that the seller is not aware of any facts or circumstances that may lead to the land being classified as contaminated land within the meaning of the Environmental Protection Act 1994.

The interpretation of this clause was recently examined by the Queensland Court of Appeal in its decision of Nichols Constructions Pty Ltd v Intensia Pty Ltd [2017] QDC 319. The Court held in this case that the seller had not breached the warranty in the clause in circumstances where, prior to settlement, it was discovered that the land had been contaminated with asbestos when approved demolition works were undertaken. As there was no evidence that at the date of the contract the seller knew the land had been or was being contaminated, and there was no reason for the seller to form the view that the land may have been contaminated, the buyer was not entitled to terminate the contract.

In this case the seller had engaged a builder to conduct the demolition. The seller had no reason to suspect that the builder would not engage a competent asbestos demolition expert to remove the asbestos from the dwelling. The result may well be different in a different factual situation.

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