At Marino Law, our thoughts and prayers are with all of those who have been tragically affected by the bushfires that are still raging across Australia. We cannot comprehend how difficult it is for those dealing with the loss of loved ones, homes, businesses, property or animals and we applaud the efforts of emergency services, charities and outreach services and the local communities for their combined and ongoing efforts in such harrowing circumstances.
In the wake of this devastation, we are receiving a number of inquiries for damaged properties that are subject to an ongoing contract of sale and whether it is the responsibility of the Buyer or the Seller to address such damage. We therefore consider it timely to provide an update as to the legal risk and insurance obligations of the parties to a contract in Queensland. Legal advice from a local lawyer should be sought as to the position in other Australian States or Territories.
There are typically two standard forms of contract used for buying and selling real estate in Queensland. These are issued by the Real Estate Institute of Queensland (“REIQ”) and Realworks ADL Software (“ADL”).
Pursuant to all forms of the REIQ and ADL contracts (eg houses and land, community titles scheme, commercial land and buildings etc) there is a standard provision that risk in the subject property passes to the Buyer on the first business day after the contract date. The rationale for this is that upon execution of the contract, a Buyer obtains an equitable interest in the property that it should protect by taking out appropriate insurance cover.
As a result of this passing of risk, if damage occurs between the contract date and the settlement date (except where the property is destroyed or damaged to the point where it is unfit for occupation), the Buyer does not have any rights to terminate the contract and is still required to purchase the damaged property, without a reduction in the purchase price.
It should be noted that where the damage is such that the property is no longer fit for occupation, there is some relief offered by virtue of section 64 of the Property Law Act 1974 (Qld) which may give the Buyer a right to rescind and receive a refund of their deposit.
If damage occurs and s.64 does not apply, it may be possible for the Buyer to gain the benefit of the Seller’s insurance. We do not recommend that a Buyer rely upon this possibility because:
- the Seller may not have insurance or may have cancelled same;
- the event causing the damage may not be covered by the wording of the Seller’s policy; or
- other factors may preclude a claim or recovery.
We therefore strongly recommend the Buyer take out their own insurance immediately following their signing of the contract. The types of insurance required are dependent on many factors including the type, location, age and improvements on the property and the advice of a specialist insurance broker should be sought.
Common examples for a typical house would include (but may not be limited to):-
- Public liability insurance;
- Contents and property (if the contract includes chattels or you have any items in the property);
- Building insurance.
In a community titles scheme, some insurances (eg. building and common property areas) are maintained by the body corporate. Individual lot owners usually require contents and public liability insurance within their lot. Other insurances may apply, depending on the scheme in question.
For a property sold with tenancy, a Buyer should also hold a landlord’s insurance package against any tenant or occupant that suffers injury or damage between the contract date and settlement.
Any lenders that are financing the purchase will usually insist upon the Buyer taking out insurance and noting them on the policy as an interested party prior to funds being advanced.
The importance of a Buyer being aware of the time that risk passes under the contract and the requirement to take out insurance cannot be overstated. For further information in this regard, please contact one of our experienced property and commercial lawyers for a no obligation consultation.