Why a Purchaser Should Insure the Property BEFORE Settlement

It is important as a buyer to know when the seller will no longer be liable for any damage to the property.

The Passing of “Risk”

In most Queensland contracts, risk in the property passes from the seller to the buyer at 5 pm on the next business day after signing the contract (not from the date of settlement). Essentially this means any damage to the property from accidents or acts of nature (think storm) are the Buyer’s responsibility.

No Right to Terminate
 
If the property is damaged during the period between the contract date and settlement date, in most cases the buyer will not be able to terminate the contract as a result.
If the contract happened to still be within the 5-day cooling off period, the buyer could terminate and recover their deposit (less 0.25% of the purchase price which is retained by the seller). Alternatively the contract may still be subject to a satisfactory building inspection.
 
Sellers Obligations
 
The seller does have an obligation to take reasonable care of the property leading up until settlement.
 
It always recommended that the Seller maintain their insurance in case the sale does not proceed.
 
It is strongly recommended the buyer to ensure they are covered as they cannot claim on the Seller’s insurance policy.
 
Exception
 
There is an exception under s 64 of the Property Law Act, which gives a buyer the right to terminate the contract and recover the full deposit amount in the event that the house is destroyed, or damaged to the extent it is deemed “unfit for human habitation.” This applies no matter what is stated within the contract.
 
An example of a house that is “unfit for human habitation” could include where it has been destroyed by fire or completely flooded.
 
Units and Townhouses
 
All of the above does not apply when purchasing a unit or townhouse, as the body corporate is obliged to obtain insurance for the premises. However, it is a good idea to check insurance is actually in place and exactly what it covers. The buyer will still need to obtain contents insurance for their furniture and other belongings within the unit or townhouse. Even if you rent the premises you need the contents insurance as it includes public liability ( think personal injuries) for the inside of the unit. Body Corporate Building insurance unlike like normal house insurance, does cover the inside of the unit .