For most people, buying a house is one of the biggest and most important investments they will ever make. That is why it is concerning when Buyers fail to take out adequate insurance to protect their interest in the property they are purchasing.
Under the REIQ contract for the sale of property in Queensland, the property is at the Buyer’s risk from 5:00pm on the first business day after the Contract Date. From that time, the standard position is that the Buyer assumes responsibility for the property throughout the contract and settlement period
That is why it is vitally important that Buyers take out home insurance cover as soon as possible after signing the Contract of Sale.
Why Is Property Insurance So Important?
Once the 5:00pm deadline has passed on the next business day after the contract was signed, the Buyer becomes responsible for any damage to the property. For example, if the property is damaged by a weather event between this deadline and settlement, the Buyer will still have to settle at the agreed full purchase price, and will not have a claim against the Seller for the cost of repairing the damage.
Despite this, it is a legal requirement for the Seller to take reasonable care of the property until the settlement date, and they will be liable for any wilful act or negligence causing damage to property, including by third parties.
What About The Seller’s Insurance?
Even though the risk of damage to the property passes to the Buyer during the contact period, we recommend Sellers maintain their insurance over the property up to the settlement date. This is because there are some instances where the risk can pass back to the Seller prior to settlement.
It may be possible in some situations for the Buyer to gain the benefit of the Seller’s insurance policy. However, it is extremely risky for buyers to rely on the Seller’s insurance. The Seller might not have insurance, or they may choose to cancel it. The Buyer also typically has no line of sight to what is covered and not covered under the Seller’s insurance.
‘Unfit For Occupation’
An exception to the rule that the Buyer is responsible for any damage to the property during the contract and settlement period is where the property is so damaged that it is unfit for occupation as a dwelling. This is a legislative rule, and it applies regardless of what the particular contract says.
Exactly what ‘unfit for occupation’ means depends on the individual situation, although it must be damage or destruction so significant that no one would be reasonably expected to live in the dwelling. If this is the case, the Buyer will have the right to terminate the contract, and retain their deposit. They must give written notice to the Seller before the contract is completed.
It is up to a court to determine whether a dwelling is unfit for occupation. If a property is badly damaged prior to settlement, and neither party has an insurance policy that will cover the damage, the Buyer will need to make an application to Court for a remedy.
What If I’m Buying A Unit?
If the property you are buying is in a Community Title Scheme (i.e., a unit, apartment, or duplex), the body corporate will usually have a building insurance policy to cover the common property. Your conveyancer will run searches to obtain insurance information from the body corporate, and you should take out insurance to cover any part of the building not already insured.
Do I Need Contents Insurance As Well?
Buyers should also take out contents insurance to ensure the interior of the lot (including internal fittings like curtains and carpet) is covered.
As well as home and contents insurance, you should take out public liability insurance.
In conclusion, taking out a home insurance policy is a critical component in protecting your interest in your new home. Buyers should arrange their own insurance directly or through an insurance broker as soon as they can after signing the contract of sale.
Our experienced conveyancing lawyers are available to answer any questions you might have about insurance, or any other aspect of conveyancing in Queensland. Contact us today!
The above is not legal advice and is general information only.
Whether you are buying or selling, our dedicated team will work with you to ensure your property settlement is a stress free and exciting process. We want you to feel that you are in control of the conveyancing process, not that the process is in control of you. Let us show you how easy it can be.