As one of the leading Gold Coast law firms, our property and conveyancing team at Affinity Lawyers deal with many transactions, and a common question asked is ‘what happens if the house is damaged after the contract has been signed, prior to settlement occurring?’.  

As most of you would be aware, Queensland has been suffering some wild weather recently as a result of tropical cyclone Debbie, and the damage bill to property in our state has already been calculated at hundreds of thousands of dollars.  So it is timely to consider what would happen if you were in the midst of the sale or purchase of a property, and the property was damaged before settlement.

Unfortunately, there is no clear-cut answer to this question and each case will turn on its own circumstances as there are a range of factors involved, including, amongst other things, what type of contract has been used (an REIQ contract or bespoke contract), what point the contract has reached (i.e. are there any building and pest conditions or due diligence conditions still unsatisfied), insurance policies in place over the property and whether any special conditions or clauses were inserted into the contract in relation to the condition of the dwelling.

Generally speaking, under a typical REIQ contract with no extra special conditions inserted or any of the general conditions removed, the property is said to be at the risk of the buyer from 5.00pm on the first Business Day after the date of the contract. Accordingly, it is prudent that any person entering into a contract to purchase a property takes out a suitable insurance policy to cover the property (this is generally taken out in both the buyers and the sellers names) immediately after signing the contract.

Despite the above, it is strongly recommended that sellers maintain their insurance policy over the property until the property has been successfully conveyed to the purchaser. This ensures that should any damage occur to the property during the conveyancing period, where the buyer has failed to take out a suitable insurance policy, the property is still covered for damage.

Arguably, if a buyer does not take out a suitable insurance policy they may still be deemed to be covered by the seller’s insurance policy (if in fact they have one in place) until settlement or when they enter into possession of the property (whichever occurs first) under the Insurance Contracts Act 1984. However, there is some legal controversy over the interpretation of the relevant provisions in that Act, as well as whether they would be able to effected in practice.

However, regardless of whether it is the buyer’s or the seller’s insurance policy which would need to be relied upon in the event of damage to the property, it is very important to note that each individual insurance policy is different, and many do not extend to cover events such as natural disaster or floods, hence there would be no protection for the property if such an event were to occur.

If damage has occurred to the property prior to the buyer taking possession of the property, and an argument arises as to whether the buyer is required to settle the contract as a result of the damage, arguably it is the buyer’s insurer who is responsible for any repairs required to the property. The buyer would have no right to refuse to settle or for compensation from the seller.  If the buyer did not have insurance in place, the seller’s insurer may arguably be called to cover the damage to the premises (accordance with the relevant provisions of the Insurance Contracts Act) but again, this would depend on a variety of factors including whether the seller had insurance in place, and whether the insurance policy extended to cover the nature of the damage to the property.  If the seller has no insurance on the property, then the buyer may be faced with a substantial repair bill.

Despite the above, it is also important to note that there are some extreme cases where the buyer may still be able to terminate a contract prior to settlement or possession of the property, regardless of the state of affairs of the insurance policies, under provisions in the Property Law Act (Qld) where it is determined that “a house is so damaged or destroyed as to be unfit for occupation”. 

The determination of whether a property is “unfit for occupation” is a complex assessment, and if it is determined that the property is damaged to a lesser extent, the buyer will still be required to comply with the contract and settle on the due date, regardless of whether or not the property has been repaired prior to settlement.

In situations where the discussed type of dispute arises, there is often no quick resolution and it can become a drawn-out and expensive matter to pursue for all parties involved. Accordingly, it is vitally important that you have an experienced and professional lawyer handling your conveyancing transaction from start to finish, so that you are aware of the risks and obligations imposed on you by the contract into which you have entered, and can deal with these types of issues promptly if they occur.

Our Gold Coast property law team are equipped to handle the most complex of property transactions so you can rest assured you are in safe hands when you use Affinity Lawyers for your conveyancing or property needs. Feel free to telephone our Gold Coast office today on 55 638 970 to discuss your conveyancing transaction with one of our friendly team.