Your house is destroyed before settlement of your sale - what can you do?

A couple finally achieved an unconditional Agreement for Sale and Purchase for the sale of their home after it had been on the market for several months.  All was on track for a straight-forward transaction progressing to settlement when an extreme weather event swept through the region, leaving the property severely damaged and untenantable due to the significant flood damage at the dwelling.

Upon taking legal advice they quickly learned about the process that needs to be followed, which is summarised below:

1. Firstly, when selling your property it is important to note that the risk for the property, in terms of insurance, lies with you as the vendor until settlement of your sale is completed.  The vendor must always keep their insurance in place right up until settlement has taken place and ownership of the title has been transferred to the purchaser.
2. Upon knowledge of the destruction, you need to make a claim with your insurance company immediately and advise your lawyer of the situation.
3. If the property is untenantable (i.e.: not able to be lived in), or destroyed, the purchaser has the right to:

• Cancel the Agreement for Sale and Purchase (they must serve Notice on you, the vendor) and they also have the right to be refunded the deposit they have already paid to the real estate agent or to your lawyer’s trust account, as the case may be; or
• The purchaser has the option to continue with the purchase of the property, with a price reduction that is equal to the insurance payout being made to you by your insurance company; or
• If your insurance company agrees to repair and restore the property (reinstatement) then the purchaser must continue with the purchase of your property and they have no right to request a price reduction for their purchase.

1. If the property is not considered to be untenantable but has sustained damage, the purchaser must still complete the purchase transaction.  However, they are able to seek a price reduction that equates to the loss in value arising from the damage.  This loss is calculated by reasonable estimates provided by professional tradespersons to repair the damage.
2. Clause 10 in the Agreement for Sale and Purchase provides a process to be followed should any dispute arise, for example if the parties do not agree on the values being applied to a price reduction or the cost of reinstatement.

In the event any damage occurs at your property prior to your sale settlement (including damage arising from matters other than extreme weather events) it is important to promptly advise your lawyer who will be able to guide you through the process.