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:
Recommendations for Buyers and Sellers
- a Buyer should take out an insurance policy over the property before or immediately after the risk is transferred;
- Sellers should retain their insurance policy on the property until settlement to fully protect themselves;
- document any damage to the property, by taking photos and videos;
- check any special conditions of the contract regarding the transfer of risk; and
- check the terms and conditions of the insurance policy and ensure parties comply with any obligations under that policy.
Read more about Buyer’s insurance obligations here…
If you need any assistance with buying or selling residential or commercial property in Gold Coast, Brisbane or Sunshine Coast, contact us today!
By Aspen Roggeveen