Buyers and sellers: Who's responsible when disaster strikes?
IN TOWNSVILLE extreme weather is not uncommon. Every year we seem to brace for impact as cyclones bear down on us.
This raises a big question around property sales and transfer of risk: "What happens if my house has sold but not yet settled and a cyclone hits it? Does the sale still go ahead and who pays for the damage?".
According to the standard terms of the REIQ Contract of Sale, risk transfers to the buyer at 5pm on the next business day. So, if the contract was signed 2pm on Monday, the risk transfers to the buyer at 5pm on the Tuesday. If the contract is signed on Saturday, the risk is transferred at 5pm the following Monday (provided it is not a public holiday. If it is, then risk transfers at 5pm on Tuesday).
When we say "risk transfers to the buyer" we mean that risk of damage to the property moves from the seller to the buyer, and thus the responsibility for repairs. Having said this, the seller still has obligation to maintain the property up until settlement.
So as a buyer when you have been advised your offer has been accepted and signed by the seller it is prudent to arrange your insurance for the new property immediately.
But what happens if, after your sale contract has gone unconditional, but not yet settled, and the property becomes severely damaged or destroyed by a cyclone or other disaster?
In very limited circumstances under section 64 of the Property Law Act when a residential property is deemed unfit for habitation there is a provision to potentially terminate the contract. The buyer must give appropriate notice to the seller and can potentially do so without penalty and may have all deposits refunded.
Be aware, however, that these circumstances are extremely rare. There is no automatic right to pull out of a contract because the property is damaged or affected by flooding or cyclone after the contract is entered into.
In the event the property is damaged and not destroyed and the buyer elects to proceed with the sale it may delay settlement occurring in the previously agreed time frame while the buyer's insurers assess the claim and then carry out the repairs, or the parties may agree to settle and carry out the repairs after the fact.
It is also prudent, if you are a seller, to maintain your insurance as there may be some disagreement between insurers as to who has to cover what.
In Townsville it is also possible to include storm and cyclone contingency clauses into the contract, by negotiation.