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A question that is raised quite frequently at the beginning of the conveyancing process is ‘why does the Buyer need insurance to protect the property before they have become the registered owners?’ It may seem at first glance that insurance is not important when signing a Contract, but it is essential that both parties are protected in the event that damage occurs to the property.
In accordance with the Standard Terms and Conditions of a Contract, the property is at the Buyers’ risk from 5:00pm on the first business day after the Contract Date. Even before the Contract becomes unconditional, the Buyer can be required to settle in accordance with the Contract, irrespective of any damage that may have occurred before settlement takes place.
For example, if a property Contract was signed on the first of the month and due to settle at the end of the month, but during that time the property was damaged by an unintentional fire or vandalised, the Buyer may still be required to settle the matter and seek damages from their insurer.
For multiple reasons, the settlement of a property can be delayed. In some instances, it can be crucial for the Buyer to seek early possession or early access to the property. Another reason for the Buyer to consider the need for insurance is that the Seller will request evidence of the Buyer’s adequate insurance including public liability (amongst other conditions) before they consider granting the Buyer access to the property.
In some instances, the Buyer’s financier may offer free insurance for the period up until settlement.
However, the Buyer having insurance does not indemnify the Seller from any risk on the property. The Seller has a continuing obligation to maintain the property in the same condition as at the Contract Date not including any reasonable fair wear and tear. If the property receives damage to the extent that it is deemed “unfit for occupation” then the Buyer may have the right to terminate the Contract.
If there is a conflict in determining whose responsibility it is to seek damages for the property it will be resolved between the two parties’ insurance providers. In the event either party of the Contract fails to maintain adequate insurance over the property, they will run the risk of significant loss. It is highly recommended that the Seller of the property maintains their insurance policy throughout the Contract up until their Solicitor or conveyancing agent confirms that settlement has been completed.
This document offers general information only and should not be relied upon as legal advice under any circumstances. Please do not hesitate to contact Rapid Conveyancing on (07) 4755 9150 to speak with one of our friendly professionals if you require assistance with your conveyancing matter.