Construction Defects Found Before Settlement: Your Legal Rights in Victoria 2026

You’re at the final inspection, keys almost in reach, and then you see it. A damp patch creeping out from the shower. A balcony that pools water. Doors that won’t shut without a shove. When settlement is days away, it can feel like you’ve got no room to move.

If you find construction defects before settlement in Victoria, you do have options. The right option depends on what you bought (new build, off the plan apartment, renovation, older home), what your contract says, and how serious the defect is. The big mistake is acting on instinct, either by settling and hoping it sorts itself out, or by refusing to settle without a solid basis.

This is general information for Melbourne property buyers and sellers. If you’re mid transaction, get tailored advice from your conveyancer as soon as possible.

What you’re meant to receive at settlement

In a standard Victorian sale, settlement is when the balance price is paid and title transfers. The seller must hand over the property in the condition required by the contract.

That ‘condition’ can look different depending on the purchase:

• Established homes: you’re generally entitled to the property in substantially the same condition as when you signed, allowing for fair wear and tear. The pre settlement inspection is there to check nothing has been damaged, inclusions are still there, and fixtures and services are working.

• New builds and townhouses: you’re usually checking that the home is complete, safe, and built in line with what was promised in the plans and specifications.

• Off the plan apartments: you’ll often focus on your lot, while larger building items can involve the builder and the owners corporation as well.

If you want a quick refresher on what usually happens between signing and settlement, the post-contract process is a useful reference point.

Can you delay settlement or refuse to settle?

Sometimes, yes. Not always.

If you fail to settle without a justified reason, you can be treated as being in default. That can lead to penalty interest and formal notices, and in serious cases the seller may try to end the contract and keep your deposit. So the aim is to respond in a way that matches the defect and the contract.

A simple rule of thumb:

• Serious defects (safety risks, active leaks, major non completion, missing approvals that stop lawful occupation, major departures from the plans) may justify pushing for rectification before settlement or negotiating an extension.

• Minor defects (small paint marks, a loose handle, a door that needs adjustment) are less likely to justify holding up settlement, even if they’re frustrating.

The fastest way to understand your position is to check the contract terms and any special conditions. Some contracts set out exactly how defects are notified and what happens if completion is delayed.

Defects that tend to matter most before settlement

Not every defect carries the same weight. Issues that commonly change the settlement conversation include:

• Water ingress and drainage faults: leaks, failed waterproofing, balconies that drain the wrong way, signs of moisture that can lead to mould.

• Structural concerns: major cracking, noticeable movement, sloping floors, bulging walls.

• Safety hazards: exposed wiring, missing balustrades, broken glazing, unsafe stairs, gas issues.

• Missing or incomplete essentials: items promised as part of the sale that are not installed or not functional.

• Possible non compliance: work that appears inconsistent with approvals, or a property that doesn’t appear ready for lawful occupation.

Cosmetic defects can still matter, especially in a new home where finishes were part of the value. The key is being realistic about which issues can justify a settlement change and which are better handled through a written rectification plan.

What to do straight away

The week before settlement can be a blur of emails, bank calls and moving plans. These steps usually protect buyers best.

Document the defects properly

Take clear photos and short videos, with wide shots and close ups. Write a list while you’re still on site: where the defect is, what you observed, and what it affects.

Keep communications in writing. If you have a phone call with the agent, builder or site supervisor, follow up with an email confirming what was said.

Get an independent report

A qualified inspector can identify defects you might miss, and their report is far stronger evidence than a few blurry photos. For many buyers, booking a building inspection before settlement is what turns a stressful hunch into a clear plan.

If time is tight, ask the inspector to prioritise waterproofing, structure, safety and compliance items.

Tell your conveyancer before you agree to anything

Before you accept ‘we’ll fix it after settlement’, or threaten to walk away, loop in your conveyancer. Your rights and risks can turn on small details: the wording of the contract, what notices must look like, and whether the issue is a breach or a repair item.

Put the seller or builder on notice in writing

If the defects are more than cosmetic, your conveyancer will often recommend a written notice describing the issues, attaching evidence, and setting out what you’re asking for. Aim to be specific:

• list defects and locations

• request rectification and access for reinspection

• ask for confirmation of who will do the work and when

Avoid relying on verbal promises. If it’s not written down, it’s harder to enforce later.

Practical options before settlement

Once the defects are on the table, there are a few realistic paths. Which one fits depends on severity, timing and co operation from the other side.

Repairs completed before settlement

This is the cleanest outcome. You agree what’s being fixed, who’s doing it, and when you can reinspect. For waterproofing, electrical or structural work, ask for evidence that licensed trades completed the repair.

Settlement date moved by agreement

A short extension can give time for rectification and reinspection. Your conveyancer can document this so you’re protected.

Defects are one reason a deal can run late. If you’re already juggling multiple moving parts, our guide on settlement delays explains how delays are commonly handled.

Price adjustment or money held back by agreement

Sometimes the seller agrees to reduce the price or hold a portion of funds until repairs are completed. This must be agreed and documented properly, because settlement in Victoria runs to a set process and timetable.

If you’re considering this route, see contract variations for how changes after signing are usually recorded.

Settlement proceeds, with clear post settlement steps

There are cases where settlement still goes ahead, even with defects raised. If that happens, you want a clear paper trail and a realistic repair plan that’s agreed in writing.

Your options after settlement can include contractual claims, consumer law remedies, and (in certain situations) building dispute pathways. The best choice depends on who did the work and what documents apply.

Holding off settlement or ending the contract

This is the high stakes path and it needs careful advice. It tends to be reserved for defects that are genuinely serious, where the property cannot be delivered in the condition required by the contract. Even then, the safer first step is often a documented extension and a defined repair scope.

A simple action timeline

Building rights and dispute pathways in 2026

With defects, two lanes often overlap: the contract of sale and the rules that apply to building work.

• The contract drives settlement, and sets the rules around inspections, notices, breaches and remedies.

• Building and consumer laws can create separate rights to have defective work fixed or compensated, especially where the seller is also the builder or developer, or where the issue relates to domestic building work.

In Victoria, domestic building disputes are often steered through the state dispute resolution scheme before tribunal action. The building regulator set up has also been changing, so it’s sensible to get current guidance on the right pathway for your case.

Domestic building insurance: useful, yet limited

Domestic building insurance can help in certain situations, yet it doesn’t work like everyday home insurance. It is generally aimed at scenarios like a builder becoming insolvent, disappearing, or failing to comply with a tribunal order. Policy limits and time limits apply, and not every defect will be covered.

If you’re buying a new home or renovated property, your conveyancer can help you confirm what insurance documents have been provided and what triggers cover.

Melbourne scenarios that show how this plays out

A Southbank apartment handover
At the inspection, your shower leaks at the screen, and a window doesn’t seal properly. In the hallway, there’s also dampness after rain. Your lot defects can often be pushed for rectification before settlement, while common property items may follow a different route. Evidence and written notice matter for both.

A townhouse in the outer east
Everything looks neat until you see the backyard draining toward the slab after a storm, and moisture marks near a skirting board. Drainage and waterproofing issues can grow quickly once Melbourne winter kicks in. A fast independent report can help you negotiate repairs or a short settlement extension with confidence.

Traps that catch people out

• settling with only a verbal promise to fix defects later

• treating every defect as a settlement stopper

• missing the notice requirements in your contract

• skipping independent evidence because you’re rushed

• assuming insurance will cover every defect

Common questions

Can I delay settlement if I find defects at the final inspection?

Sometimes. It depends on the defect and the contract. Your conveyancer can quickly assess whether a delay is likely to be justified.

Can I insist the seller fixes defects before settlement?

You can ask, and you can negotiate. Your strongest position tends to be where the defect is serious and the contract supports your request.

Can we keep money back at settlement until repairs are done?

Only if both sides agree and it’s documented properly.

Do I still have rights if I settle and defects remain?

Yes, often. The right pathway depends on the contract and the party responsible for the work.

Should I always get an independent inspection before settlement?

If you’re buying new, renovated, or you have any doubt at all, an independent inspection is often money well spent.

Talk to Pearson Chambers Conveyancing before you commit

Defects discovered days before settlement can be overwhelming, especially when you’ve already lined up movers, taken leave, and told everyone you’ll be in next week. A calm plan, backed by evidence and the right contract steps, can make all the difference.

If you’ve found construction defects before settlement, contact Pearson Chambers Conveyancing for tailored guidance and a complimentary Section 32 contract review.

Email: contact@pearsonchambers.com.au

This article is general information only and isn’t legal advice.