Property Contracts for Buying a House with Water Damage & The Queensland Floods
Given what has happened in Southeast Queensland over the weekend, we thought it was timely to issue an update on the implications of floods on Contracts for the selling and buying a house with water damage.
THE PROPERTY IS AT THE BUYER’S RISK
The default position under a standard REIQ Contract is that the property is at the Buyer’s risk from 5pm on the first business day from the Contract Date. As such, there is no automatic right for the Buyer to pull out contract because the property is damaged, or flood affected. Buyers will therefore have to settle and pay the full price and make a claim under their insurance policy for any damage.
SELLER’S OBLIGATIONS
There is however an exception where the Seller has failed to take reasonable steps to protect the property against flood damage (eg. if the damage could have been prevented by the Seller sandbagging the property). Under the REIQ standard terms of Contract, a Seller must use the Property reasonably until settlement. The Seller must not do anything regarding the Property that may significantly alter it or result in later expense for the Buyer.
Based upon this, a Seller should remove water and mud from an inundated property to prevent further damage. The Seller would not however be required to make repairs (eg. replace flooring, repaint etc) prior to settlement.
Importantly, a Seller’s failure to clean up a property after a flood will only entitle a Buyer to compensation, not a right to terminate the Contract.
STATUTORY RIGHT TO TERMINATE
Under section 64 of the Property Law Act 1974, when buying a house with water damage, a Buyer does have a statutory right to terminate a Contract and recover the full deposit if the house or unit is damaged or destroyed so as to be ‘unfit for human habitation’. This section overrides anything contained in the standard REIQ Contract. It is noted that ‘unfit for habitation’ is a high threshold to meet and Buyers should be cautious of terminating a Contract under this clause when not justified, putting themselves in a position where they are in breach.
COOLING OFF AND CONDITIONS
If the Contract is still within the cooling-off period, a Buyer may decide to cancel the Contract and recover the deposit (less a termination penalty of 0.25% of the purchase price).
If the cooling-off period has expired (or been waived) then a Buyer may be entitled to terminate a Contract under the other conditions such as building and pest or finance.
DELAYING SETTLEMENT
You may wish to consider whether you have a right to delay settlement to inspect the property and assess the damage. Under the latest REIQ Contracts (17th edition for Contract for Houses and Residential Land and 13th edition for Contracts for Residential Lots in a Community Title Scheme), either party may elect to extend the Settlement Date by up to 5 business days, by giving notice before 4pm on the scheduled settlement date.
DO YOUR HOMEWORK
Before you enter into a Contract, do your homework and assess the flood risk of a property before you buy. Most Councils have a range of flood data free of charge on their websites where you can obtain historical flood information and flood maps.
If you are buying a house with water damage which also happens to be located in a flood affected area, it is at your risk and your insurance premiums may also be affected. There is no obligation on a Seller to disclose the flood risk of a property.
Should you have any queries or concerns regarding the above, please do not hesitate to contact our office and we would be happy to assist.
If you still need help with selling or buying a house with water damage, MAP Lawyers can help! You can also get in touch with us directly by calling 1300 680 584 or filling in our online form and an expert conveyancing lawyer will be in touch shortly!
Stay safe and dry!
