Property at the buyer’s risk pursuant to contract terms…

If you have sold or purchased residential property in Queensland before, you would likely be aware that the risk of that property generally passes from the seller to the buyer on the first business day after the contract date. 

Buyers should ensure that they have taken out adequate insurance cover over the property they are intending to purchase. Although not necessary, it would be prudent for sellers to retain insurance over the property until such time as settlement has been achieved, at which point a pro-rata refund may be sought from the insurer. 

Storm damage that renders the property unfit for occupation…

If a property is a dwelling (e.g. a house or unit as opposed to vacant land), and that dwelling has been so destroyed or damaged so as to be deemed unfit for occupation, buyers have some relief pursuant to section 64 of the Property Law Act 1974. 

In such circumstances, a buyer may elect to rescind the contract by notice in writing to the seller or the seller’s solicitors, delivered before the date for settlement or possession.

Where a buyer elects to rescind, any monies payable by the buyer (e.g. contract deposit) must be refunded in full to the buyer.

A prudent seller will have maintained their insurance after the contract date and depending on the terms of that insurance may be able to make an insurance claim for the storm damage.

Storm damage that does not render the property unfit for occupation…

This is the problem area for the buyer. If a property has suffered damage but the damage does not render the property unfit for occupation, the buyer must proceed to settlement and cannot avoid the contract because of the damage no matter how extensive that damage is. The buyer will be responsible for repair of the damage. The prudent buyer who has taken out insurance from the date of the contract will be able to rely on that insurance.

If the buyer has failed to take out insurance the buyer must still proceed with settlement and will have to pick up the cost of repairing the damage without the benefit of any insurance cover. Another complication which a buyer may face is that their financier may withdraw their offer due to the uninsured damage and the buyer will be left without finance. The buyer must still proceed with settlement and if they can’t raise the funds will be in default under the contract and will have to deal with the consequence of default.

Buyers may be tempted to hold off taking out insurance until just before settlement. However, if a storm or cyclone event occurs before settlement the uninsured buyer could find themselves in all sorts of trouble.

Recommendations & tips…

As with most legal matters, there is always room for interpretation. What one person may consider ‘unfit for occupation’, another may disagree. 

We recommend that you always seek advice from a qualified legal professional, and when entering into contracts for residential property, consider: -

• Insurance – take out adequate insurance cover if you are a buyer. For sellers, consider retaining your policy until settlement.
• Inspections – buyers should carry out a thorough inspection before entering into a contract and make notes of any existing damage or defects.
• Communication – sellers should notify buyers as soon as it is apparent a property has been damaged by a storm (or other natural disaster). Failing to do so, may result in complications as settlement approaches.