The risk of damage to buildings and other fixtures remains with the seller until settlement, or some other time if it is stipulated in the contract. However, the risk passes to the buyer immediately if the buyer moves into possession of the property before settlement.
If buildings or other fixtures are substantially damaged after the contract is signed, and before the risk of damage passes to the buyer, the buyer can cancel the contract by notice in writing within 28 days after first becoming aware of the damage. In such a case, all money paid by the buyer under the contract must be repaid.
Where buildings or fixtures are damaged, and the buyer is either not entitled to cancel or chooses not to cancel, the purchase price should be reduced on settlement by an amount that is justifiable in the circumstances.
If a property is damaged or destroyed after exchange of contracts and before settlement, the buyer is deemed to be insured under the seller’s insurance policy. Whether this is of any use to a buyer depends, of course, on whether the seller has a valid and adequate policy.
Contact us to find out more if you are in any doubt about your rights or liabilities over damage to property under a contract.
Reproduced with the permission of the Law Society of New South Wales.