A couple’s home was severely damaged by storm.  They made insurance claims but their circumstances changed such that they had to sell the property before the repairs could be carried out. 

They engaged a real estate agent and disclosed the issue, but purchasers were very nervous about making offers as they understandably were not sure how the process of taking over the claims would work.

Marketing and Disclosures

Ideally, you would recommend that your vendors repair their properties before they put them on the market.  However, this may not always be possible due to time and resource constraints associated with assessing the damages and repairing the property.

If your vendor is selling their property before, or while the repairs are being carried out, they need to be cautious about any representations that they are making about the property. They should also be aware of what insurance rights they can or cannot assign to a purchaser.

You should ensure that the damage, status of repairs, and insurance claims are disclosed fully in both the disclosure document and the Agreement for Sale and Purchase.  You will need to also pay particular attention to the general terms of sale, especially the warranties, to alter or remove any as required.

Assignment of insurance

Toka Tū Ake EQC (“EQC”) will allow the assignment of insurance claims from vendor to purchaser as of right as the insurance is connected to the land, rather than to the individual owning the property.

On the other hand, private insurance policies are connected to the owner and usually include a clause prohibiting the assignment of insurance. Private insurers will consider any request for assignment of a policy on a case-by-case basis.

An assignment can become complicated where properties have both an EQC and private insurance claim, especially in situations where the EQC cap has been exceeded for the property.

Agreement for Sale and Purchase

We would recommend when a purchaser wishes to take over the vendor’s EQC and/or private insurance claims, that the Agreement for Sale and Purchase include a condition which states that the Agreement is subject to the confirmation that an assignment of insurance is approved within a stated timeframe, and that the parties will agree to the terms of assignment.

The parties should record in the Agreement the following:

  • any insurance payments the vendor has received from EQC and/or their private insurer which have not yet been applied to any repairs on the property, and whether or not these funds will be transferred to the purchaser on settlement;
  • any repairs carried out by a vendor which have not been claimed under EQC and/or the vendor’s private insurer, and if the vendor would like reimbursement of such repair costs on settlement;
  • whether any residual insurance rights should be assigned where a home has already been repaired. This gives the purchaser the right to re-open an existing claim if the repair work is incomplete or did not cover the full scope of damage. Note that EQC and the vendor’s private insurer will need to agree to this.   

Previous Vendor’s EQC and/or Insurance Claims

You will need to ascertain if your vendor’s previous vendor had made any EQC and/or insurance claims, which were assigned to them on settlement.  If so, there needs to be a continuous chain of any deeds of assignment of insurance to provide the purchaser with residual rights.  A condition in this regard should be included in the Agreement for Sale and Purchase.

Vendors and purchasers should always receive legal advice from a legal professional before signing an agreement for buying or selling a property to ensure that they are fully aware of their rights and responsibilities.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.