What Happens If A Property Is Substantially Damaged After Entering Into A Contract?

The time between signing a Contract of sale and officially becoming the owner of a property is called ‘settlement’. During this time the conveyancing process takes place, meaning all of the legal and financial elements involved with buying and selling a property are finalised so that ownership can be legally transferred, and funds are allocated to each party accordingly.

In Queensland, a typical settlement period is four to six weeks which means that, although unlikely, there is time for substantial damage to occur to a property after the Contract of sale is signed. Fortunately, it is standard right under the Contract for the buyer to have the opportunity to inspect the property one last time before settlement is finalised to ensure they are satisfied with the condition of the property, also known as a pre-settlement inspection.

When does the buyer begin bearing the risk for the property?

Ordinarily, from 5:00 pm on the first business day after the Contract date, the property all but legally belongs to the buyer and they will bear any risk concerned with the property. It’s not entirely unfair for the buyer, though, as Contracts of sale in Queensland also provide that sellers must not do anything to the property during settlement which would result in the buyer being out of pocket.

If any damage occurs to the property (with the exception of fair wear and tear) the seller is liable until settlement is finalised.

When should a buyer conduct a pre-settlement inspection?

Buyers should try to conduct their pre-settlement inspection as close as possible to the settlement date. Ideally, it will occur the afternoon of the day before settlement but should take place no later than the morning of the settlement date. This provides enough time to raise a concern but should remain too short a time period for new defects to arise.

Here’s what buyers should look out for during a pre-settlement inspection.

Damage to the property

Damage could occur for many reasons, including the sellers’ furniture being moved out without care, a burst pipe or unforeseen events caused by a party unrelated to the seller.

When completing the settlement inspection, buyers should check the whole property thoroughly, including areas where damage may not be obvious such as in cupboards which conceal pipes and along flooring, skirting boards and lower walls which commonly receive damage during moves.

Buyers should take detailed photos and/or videos of any new damage they have found.

Waste and items not forming part of the purchase

Ideally, the previous owners would have moved out of the property prior to the pre-settlement inspection, however, sometimes this isn’t possible (for example, if the vendor’s new property is not yet ready to move into) and they may be moving out on the day of settlement. Buyers should check that no rubbish or unwanted personal items have been left behind and if the sellers have not moved all of their belongings out, that everything is packed up neatly and it is unlikely that waste will be left behind.

Similarly, buyers should not have to remove any items left behind by the seller, such as furniture or white goods. If anything remains the buyer should take photographs of the items and seek confirmation that the owner will be removing them prior to settlement.

On the other hand, the buyer should confirm that any items or fixtures that are supposed to be left at the property as outlined in the contract (such as light fittings or cabinetry) have not been removed.

Repairs have been completed

Any work or repairs that the seller committed to undertake prior to settlement should be completed to the buyer’s satisfaction prior to settlement.

What should a buyer do if they find their property in an unsatisfactory condition during a pre-settlement inspection?

All issues should be rectified prior to settlement, so if a buyer is not satisfied with the condition of the property at the pre-settlement inspection, it is crucial that they immediately advise their lawyer or conveyancer. The parties will then agree to a resolution, which may include the seller:

• rectifying any damages caused to the property or arranging for a settlement adjustment in favour of the buyer so they can organise a rectification of the damages themselves;
• returning any removed items that were supposed to remain on the property;
• arranging for any waste to be removed (at the seller’s expense);
• reducing the purchase price of the property to account for any items that have been removed but were supposed to be included in the purchase; or
• having some of their settlement monies withheld until the damages have been rectified, the waste removed and/or the items included in the purchase are returned.

If you are unsure about the conveyancing process in Queensland, speak to Cairns Conveyancing Solicitors today.