Did you know that generally, residential contracts for the sale of house and land include a standard condition that says: The Property will be at the risk of the BUYER from 5:00pm on the first business day after the Contract Date
What does this mean for the Buyer?
This means the Property is at the Buyer's risk before they actually own the property. If an event occurs that requires repair or replacement to the Property, the Buyer (and its insurer) would be required to cover this, with the Buyer still being required to proceed to settlement.
So, a Buyer should, as soon as the contract is signed by the Seller, contact an insurer to take out a cover note on the Property.
What does this mean for the Seller?
Although risk has passed to the Buyer, at O’SheaDyer Solicitors, we would still always recommend that a Seller maintain his/her insurance until settlement has been taken place.
The reason for this is twofold. If the Buyer fails to obtain insurance and something happens – they are covered. Secondly, a Seller also normally has an obligation to take reasonable care of the Property
Something to think about if you are a Buyer or an Agent.
It is increasingly expensive to insure a property – especially in North Queensland. In the past you could arrange a 30 day cover-note with an insurer and pay when the 30 days were up. Most residential contracts are for 30 days so that worked well. If the contract fell over for some reason – you weren’t stung by paying a hefty insurance premium for a property you didn’t buy!
Nowadays, it is difficult to get a cover-note. You have to pay up front and if the contract falls over, while you can get a refund, it’s not entirely pro-ratered as there are stamp duty inclusions that are non-refundable.
Can the Contract be changed? - Special Condition
A Buyer and Seller can agree to the inclusion of a special condition deleting the standard condition from the Contract so that risk remains with the Seller.
If this is agreed, for an REIQ residential contract, the following special condition should be inserted:
The parties agree that standard condition 8.1 is deleted from this Contract and risk shall remain with the Seller until Settlement has been effected.
Hope this helps when you are negotiating a contract.