The recent weather events on the Sunshine Coast have highlighted to several buyers of residential properties the risks of doing so without having their own insurance in place prior to settlement.

Many are not aware that the standard residential contracts in use throughout Queensland state that the property is at the Buyer's risk from 5pm on the business day after signing the Contract.  This means the Buyer should take out insurance on the property, to protect them against the risk of it being damaged during the period between contract and settlement.

The reason for this is that there is no automatic right to pull out of a contract just because the property is damaged.  In most cases, the Buyer must still settle and pay the full price for the property.  There is a statutory exception to this (and neither party can contract out of this) - if the property is so badly damaged that it is unfit for human habitation, then the Buyer can cancel the Contract.

It is unlikely that mere water inundation would be enough to enable a Buyer to cancel and get their deposit back.  There is also some argument as to how this statutory protection operates - ie is a buyer able to cancel a contract as soon as the property becomes uninhabitable or does the right arise only if the property is uninhabitable on the settlement date?

Many Buyers choose to hold off on getting their own insurance in place until the Contract is 'unconditional",  for example, after the finance and the building and pest inspection conditions have been satisfied by them.  The problem with this situation is that there may be damage to the property which the Buyer is unaware of until they carry out their pre-settlement inspection.  If the damage was caused before the Contract became unconditional (and therefore before the Buyer had insurance in place) the Buyer may still have to settle the Contract and personally bear the cost of repairing the damage caused.

From the seller's perspective, it is highly recommended that they also retain their insurance until the settlement date as there are often other rights which might give rise to the buyer being able to lawfully cancel the contract, meaning the seller would be left with cost of repair.