You are in the process of selling your home or purchasing property and have just exchanged contracts, congratulations! Now what? Should you cancel your insurance policy? Or do you need to take out a new insurance policy? What happens if the property is damaged before settlement? The answer to these questions depends on when the passing of risk occurs, and this varies depending on jurisdiction. Read on to discover when this risk passes for settlements in ACT and NSW.
The ACT adopts the common law approach, where liability for any damage sustained to the property typically rests with the buyer from exchange and until settlement occurs. The ‘risk’ in the property passes on the date contracts are exchanged. This means that if the property sustains damage or is destroyed prior to settlement, the buyer may be obliged to proceed with settlement and bear the cost of rectification or reinstatement.
For buyers, it is recommended that insurances for building replacement, public liability and home and contents are taken out from the date of exchange to ensure buyers can fund such expenses if damage or destruction occurs.
For sellers, and despite risk passing on exchange, it is still recommended that insurances for building replacement, public liability and home and contents are maintained until settlement. In some instances, it may be necessary for the seller to rely on the seller’s policy of insurance.
In NSW, section 66k of the Conveyancing Act 1919 (NSW) provides that risk shall not pass until completion of the sale or from the date of occupation (if the contract permits the purchaser early occupation). This means that the responsibility to pay for any damage sustained to the property rests with the vendor until settlement or early occupation, whichever occurs first.
Like ACT, purchasers should take out, and vendor’s should maintain, insurances for building replacement, public liability and home and contents.
Even when buying or selling a unit, the passing of risk (as above) will apply. However, it will not be necessary to take out or maintain building insurance as the Owner’s Corporation will have and continue to take that insurance out on behalf of all owners in the Units Plan (ACT) or Strata Plan (NSW). It is still recommended for insurances for public liability and home and contents are taken out (if buying) or maintained (if selling).
If you have any property or conveyancing related queries or would like further information, please contact the BAL Lawyers Property Team on 02 6274 0999.