As much of Southeast Queensland continues to be affected by flood waters in the coming week, buyers and sellers of residential property will need to consider their position under their Contract and statutory provisions available.
In Queensland, the primary standard form Contracts (the REIQ and ADL Contract) state that the risk of the property passes to the buyer from 5:00pm on the next Business Day after the Contract Date. Consequently, the buyer assumes the risk of subsequent damage to the property and generally cannot refuse to settle or claim compensation due to damage caused by natural disasters.
It is important for buyers to arrange for insurance over the property once the Contract is fully executed. Buyers without their own insurance policy may have limited rights and increased liability in the event of damage to the property prior to settlement. Rights that may be available include:
- Making a claim on the Seller’s policy of insurance under section 50 of the Insurance Contracts Act 1984 (Cth), which deems the buyer to be insured under the seller’s insurance policy up until settlement or when the buyer enters possession of the property, whichever is earlier. However, no protection is offered where the seller has no insurance, if the property is not properly insured or if the insurance does not cover natural disasters.
- Exercising the statutory right to terminate under section 64 of the Property Law Act 1974 (Qld) if the residential property has been destroyed or damaged as to be unfit for occupation as a residential property. Notice must be given in writing to the seller before the settlement date or possession, whichever is earlier. However, this termination right only arises in the most extreme cases, and it may be arguable whether the damage is sufficient to be ‘unfit for occupation’. If the property is fit for occupation, the buyer must still settle regardless of whether the property has been repaired.
As for sellers, the property should remain insured until settlement in the event that the property is substantially damaged, and the sale does not proceed.
Should any natural disaster issues arise, both buyers and sellers should obtain evidence of damage (such as photos or video) including the source of damage.
In summary, if the property has been damaged by a natural disaster:
Buyer
- Obtain evidence of the damage (e.g. photos or videos).
- Consider the terms of your insurance policy and any obligations (e.g. whether the insurance company needs to be notified of any damage early and to be informed that the property is under Contract).
- If you do not have insurance, consider:
- any rights under the Contract, e.g. Cooling-off, Building & Pest or other special conditions;
- making a claim on the seller’s insurance policy; or
- terminating the Contract if the residential property is no longer fit for occupation.
Seller
- Obtain evidence of the damage (e.g. photos or videos).
- Consider or seek advice on whether to notify the buyer of the damage.
- Consider the terms of your insurance policy and any obligations (e.g. whether the insurance company needs to be notified of any damage early and to be informed that the property is under Contract).
Important Notice: The information in this article is current as at 1 March 2022. It is for general purposes only and should not be considered or relied upon as legal advice. The law is complex and you should always obtain specific legal advice about your circumstances from a qualified legal practitioner. If you require legal advice, please contact our office to see how we can help.
Written by Leonie Look, Lawyer, Wilson Lawyers.