Properties damaged in the Christchurch earthquake – what happens if someone had contracted to buy them?

Maryanne and Richard sold their property in Christchurch with settlement set to occur three weeks after confirmation.  One week after the agreement was confirmed, the September earthquake struck.  The property was left damaged including a chimney having fallen in.

After the earthquake, the purchasers told Maryanne and Richard that they were going to cancel the agreement.  They claimed that the property wasn’t in the condition it was when they had contracted to buy it, so they didn’t have to go through with the purchase.

Maryanne and Richard were distraught at the thought of the sale not going through.  They knew would be difficult to sell a damaged house and they had signed a contract to buy another house that was not damaged in the earthquake.  

They were relieved to hear that the purchasers were not just able to cancel the contract.

Whether or not a purchaser can cancel depends on the amount and type of damage suffered.  If a property is rendered “untenantable” on the day the purchasers are supposed to take possession, then the purchasers can:

1. Cancel the contract; or
2. Complete the purchase at a price less an amount the Vendor has received or would receive from their insurance company as compensation for the damage (unless the Vendor’s insurance company has agreed to reinstate the property for the purchasers). 

The insurance risk for the property remains with the Vendor until the possession date.

If the property is not rendered “untenantable” then the purchaser must settle.  The price will be reduced by the loss in value of the property. 

“Untenantable” means that the property as a whole has been rendered unfit for occupation and use. This is based on the purpose the purchaser intended for the property at the time of the agreement.  It must relate to the whole property.

The property was assessed and found to be tenantable, as the major issue was the chimney, that did not affect the structural integrity of the property.  The value of loss of the chimney and the other cracks in walls was assessed and the purchasers had to settle. They paid the purchase price less the value of the damage.

Maryanne and Richard were lucky that the damage to their property hadn’t been as severe as damage to other properties in the area so they were able to sell the property.  Other homeowners who have had their houses declared untenantable will likely face significant time delays and stress dealing with insurance companies, the Earthquake Commission and the Government.