Buying a property is a big step in life, and a buyer will want to ensure they obtain the property in the same condition it was in at the time of signing the contract. Insurance is a large part of ensuring that if the property is damaged, that the disadvantaged party receives compensation for fixing the damage.
However, when the insurance is required to be taken out may surprise a buyer, and the type of insurance needed depends on the type of property a buyer is purchasing.
Buyer’s Insurance Obligations
In our initial advice, we will always recommend the buyer to take out insurance over the property immediately. A common misconception is that the property and charges on the property will be the responsibility of the buyer when the property settles. A standard residential contract in Queensland will provide that the property is at the buyer’s risk from 5:00 pm on the first business day after the contract date (generally the date the seller signs the contract).
Further, it may be a lender’s condition to provide a loan that not only is insurance taken out over the property but that the lender is recorded as an interested party on the insurance certificate. Therefore, it is crucial for a buyer to arrange insurance as soon as possible after signing the contract.
Seller’s Insurance Obligations
While a contract may provide that the property is at the buyer’s risk from 5:00 pm after the first business day from the contract date, this does not fully release the seller of the responsibility to care for the property. A seller will be expected to take reasonable care of the property until the settlement. Reasonable care would not include damage outside their control (such as fire and storm damage) which is why a buyer should still take out insurance immediately.
As a precaution, a conveyancer will recommend a seller still maintain their insurance over the property, not only because of the expectation to take reasonable care of the property but in case the buyer fails to obtain adequate insurance at the time the damage occurs.
Can a party terminate a contract if damage occurs?
If damage to the property occurs before settlement, the parties will be obliged to settle the contract. Unfortunately, this means that if damage occurs to the property, a party cannot terminate the contract. The only exception would be if the damage was so severe that the property would not be fit for occupation. If this occurred, then a party may terminate the contract.
What type of insurance should I obtain?
The type of insurance a buyer should take out over a property depends on the type of property you are buying. If you are buying a house, then you should be obtaining home and contents insurance. If someone (such as the seller) will be occupying the property before settlement, it is also recommended that you obtain public liability insurance in case a person injures themselves in the property.
If you are buying a unit or townhouse, the body corporate takes out insurance over the building. An owner will be charged for the cost of the insurance through the body corporate levy fees. The body’s corporate insurance will only cover common property and not the personal possessions inside the unit (such as carpets and curtains). Therefore, a unit owner should take out contents and public liability insurance in order to insure the items and injuries that may occur inside the unit.
If the property is bought as an investment, regardless of whether the property is a house or a unit the owner should also obtain landlord insurance. Landlord insurance provides specialised insurance for renting situations where the tenant damages the property or fails to pay rent on time, something home and contents insurance does not provide cover for.
If you have any questions or require assistance with a conveyancing matter in Queensland and when you are at risk then please contact the property team at NB Lawyers, Lawyers for Employers for more information.
Kayleigh Swift, Associate
Chloe Skubis, Graduate Law Clerk
About the authors
Kayleigh Swift is an associate in our Commercial and Property team who assists with Employment Law matters. With a high level of experience in commercial and retail leasing, voluntary and involuntary purchase and sale acquisitions, property development and employee relations, Kayleigh provides practical advice to ensure smooth business transactions.
Chloe Skubis is a Graduate Law Clerk in our Property team who assists with various conveyancing transactions. Chloe is very experienced in residential conveyancing and is a problem solver. She always provides efficient service to all her clients.