Seller Beware – Queensland Floods and what this could mean for your Sale

Queensland has been subject to several catastrophic weather events in the past, the most recent of which being the 2022 floods. As we start to rebuild from the havoc wreaked by this event, with the memories of 2011 still fresh in our minds, it is prudent to consider the impact of such devastating events on our contractual relationships. Picture this: you are about to settle on your beautiful new home. Settlement under the contract was due to be completed on 11 March 2022. During the floods that devastated much of the Southeast Queensland, your prospective new house was inundated with water. You are devastated. The Seller is devastated. But the looming question remains – who is responsible, and what can you do?

The Contract

Under common law, and expressly stipulated in the REIQ contracts, the property is at the risk of the Buyer from the date the contract is formed (or the next business day). This means that, providing the contract is valid, the Buyer may be compelled to complete the contract (and potentially rely on any insurance) in the event of loss or damage to the property after the contract date. It is for this reason, and the problems that arise as a result, that we recommend our clients obtain insurance from the date the contract is signed. Whilst the seller is obliged to treat the property with reasonable care until settlement, this type of weather event would be outside that consideration, and there is nothing that compels the Seller to maintain the insurance after the contract is formed.

Statutory Rights from the Property Law Act

All is not lost however, should the hypothetical above be your reality. In Queensland (and Queensland alone, although Victoria does have something vaguely similar) there is statutory provision at section 64 of the Property Law Act that allows a Buyer to rescind the contract in certain circumstances where damage has caused your residential property to become uninhabitable. However, there are several elements that need to be established before rescission can occur pursuant to this provision.

In order to rely on section 64 for relief, the contract for sale must be for a “dwelling house” which includes units in a Community Titles Scheme (your lot must be damaged, not the common property) but currently excludes commercial transactions. The dwelling must be ‘destroyed or damaged’ which means there must be physical evidence rather than a transient impediment to occupation. An event such as a fire, or the Brisbane river running through your living room may not need a thorough investigation. However, water ingress or rising damp from flooding can result in far less obvious physical manifestations (but may still be just as harmful to the property).

Another element that needs to be proved, is the damage must render the dwelling house unfit for occupation, when reasonably considered. This may result from only part of the property being damaged (such as the bathroom). But the damage must render the property unusable in the present condition. Temporary damage such as loss of lights or temporary power outage is unlikely to be sufficient to warrant notice by the Buyer under section 64. Critically, in this writers opinion, the fact that the damage may be rectified by the Seller prior to Settlement does not preclude the Buyer from being able to rescind the contract if, otherwise the Buyer is able to rely on this section. This is huge, and where the Queensland position varies from that of a similar statutory relief in Victoria. Essentially what this means is, if at the time the notice is issued (which must be done prior to the actual settlement date or possession date) the unit is proved to be unfit for habitation, irrespective of whether the seller is willing and/or able to rectify the damage (potentially, even if that can damage can be fixed prior to Settlement) the Buyer may issue a notice in writing to the Seller and effectively rescind the contract. Remember how we said the Seller is not obliged to maintain insurance on the property after the contract date? Should the Buyer effectively rescind the contract at this point (this point being, when Brisbane river is flowing freely through the living room) the Seller then becomes responsible for the property (and the damage). In Victoria, the only other State that has a statutory right akin to our section 64, if the Seller can (and does) rectify the issue prior to the settlement date, the provision can not be relied upon. A seemingly more equitable arrangement in our opinion.

The takeaway: always have a solicitor review your contract prior to signing. Whilst you may not always be able to change the position (section 64, can not be contracted out of), it is crucial that both Sellers and Buyers are aware of the risks they are signing up for.

At Perspective Law, we would love the opportunity to assist you with all your review needs. So, get in touch with Tony Crilly at tony.crilly@perspectivelaw.com or Katherine Blood at Katherine.blood@perspectivelaw.com or Stuart Wardrobe at stuart.wardrobe@perspectivelaw.com before you sign your next contract.

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