This past week of extreme weather has left countless Queensland homeowners with flooded and severely damaged properties. Flooding and property damage pose serious issues for parties to a Contract of Sale that has not yet settled. There remains considerable confusion surrounding who is responsible for the repair of the damage to a property that is under a Contract of Sale.
Key Points to Consider
The risk of the property passes to the Buyer at 5:00pm the next business day after the contract is signed. This means the Buyer must pay the whole purchase price if the home or other improvements on the property are damage or destroyed between when the contract is signed and settlement (unless it was the Seller’s fault)
The usual exception to this transfer of risk exists in ‘off the plan’ contracts where the risk of the property is not typically transferred to the Buyer until registration or settlement
The Buyer should have Insurance from when the risk is transferred
The Buyer may be able to claim on the Seller’s insurance if they are not insured
The Buyer may have the right to terminate if the damage renders the property not suitable for occupation
This means that the Buyer must be extra diligent during these times.
The Right to Terminate the Contract of Sale
Severe damage occurring to a property before settlement does not give the Buyer the immediate right to terminate the Contract of Sale. Where a property is severely damaged, the Buyer may still be obligated to proceed to settlement and pay the full contract price. In which case, the Buyer would attempt to claim the damage under their own insurance policy (if applicable).
The Buyer may have a right to terminate the contract under:
section 64 of the Property Law Act 1974 (QLD)the Buyer may have a statutory right to terminate if a property has been damaged such that it is unfit for human occupation.
contractual conditions such as building and pest or finance conditions.