The Risk of a residential Property passes to a Purchaser one Business day after the contract date.
When a purchaser enters into a contract to purchase a residential property in Queensland it is a standard term of the contract that the property is at the buyers Risk from 5.00 pm on the next business day after the contract date.
What Insurance should the buyer obtain?
For the standard standalone dwelling the buyer should obtain Building insurance, contents insurance and public liability cover. Should a claim arise during the period between contract and settlement insurance companies are aware of these standard conditions in the contract and will rely upon these contract terms if they are entitled to do so.
A common misconception by buyers is that they do not have any of their possessions in the residence before settlement and therefore there is no need for contents insurance. The contents insurance is an important aspect of the insurance requirements as most building insurance policies will not cover any damage caused to the internal part of the dwelling due an insurable event (i.e. storm damage to the internal fixtures and fittings such as curtains, shutters, blinds, stoves, fridges, microwave, washing machines, dryers, built in BBQ, exhaust and fans). These items are normally covered by a contents policy.
Body Corporate Contracts
Though there are a few exceptions, the Body corporate normally has a Building insurance policy for the complex and the building is covered under the Body Corporate policy. The internal area of each lot is therefore the responsibility of the lot owner or buyer under a contract of sale and contents and public liability insurance should be arranged with respect to the property within the time frames as set out above.
When insuring your unit you must also consider whether your policy covers any escape from your unit (i.e. water leaks) that may damage other units and whether your policy covers this eventuality in the event the Body Corporate insurer declines to cover the event or whether the assistance of an insurance broker to ensure you are fully covered should be considered.
When do you think about insurance?
Think about your insurance requirements before you enter into a contract to purchase.
The above examples are the standard considerations that a buyer must take into account when arranging insurance after signing a contract, however not all properties or situations are the same and the short time frame from the contract date to the time risk passes to a buyer can leave buyers limited opportunity to secure insurance if the property they are intending to purchase is outside the standard or if there are other circumstances which may affect their ability to obtain insurance; for example:
- Is the proposed purchase price in excess of the upper limit of cover offered by some insurance companies – do you need specialist assistance?
- Is there a natural event imminent that would cause insurance companies to decline offering insurance i.e. Cyclone warnings;
- Is there something particular about the property you are purchasing that would require specialised insurance assistance.
Should the Seller continue their Insurance Policies until settlement?
The simple answer is yes. The property is still your property until settlement has been completed and there are a variety of events that can take place which can prevent completion of the sale, even after the contract goes unconditional. A seller should always ensure that their position is protected and not rely on the buyers to adequately insure their property.
If you require further information regarding purchasing property, please do not hesitate to call us and talk through any of these issues on (07) 3839 7555.