What Happens If Your House Is Damaged Before Settlement?
Settlements can become tricky when unexpected things happen. This article covers the legal details around storm damage before a property settlement in Western Australia.
The following information assumes your contract is covered by the Joint Form of General Conditions – JFOGC 2018 Version. For storm damage, Clauses 8 & 9 are the ones to pay attention to.
Both sellers and buyers can be at a loss as to who is responsible for fixing damage caused prior to settlement, so let’s clear it up right here, right now.
WHAT IS CLASSIFIED AS MINOR STORM DAMAGE?
Storm damage usually leads to what would be considered minor damage, such as fences falling over or water damage to ceilings.
In such cases, refer to Clause 9.1(f) of the Joint Form of General Conditions. This clause states that the property at settlement should be in the same state and condition as it was prior to the contract date.
Sellers would need to repair the damage or offer compensation as described below.
WHAT IS CLASSIFIED AS MAJOR STORM DAMAGE PRIOR TO SETTLEMENT?
If a storm makes a property uninhabitable or unusable compared to the condition reported in the contract, the seller (or their agent) must give formal notice to the buyer. Clause 8.2 of the Joint Form of General Conditions comes into effect here.
Following the formal notice, a buyer has 15 business days where they can choose to end the contract. Otherwise, a reduction of the purchase price will apply in equal value to the damage caused by the storm.
Fortunately, such damage is rare, though, in such circumstances both parties would benefit from legal advice and from having an experienced conveyancer on their side.
A BUYER’S OBLIGATION FOR FIXING STORM DAMAGE IN WESTERN AUSTRALIA
If you’re buying a property, there are three points in time in which the responsibility for fixing storm damage is yours:
- When you have paid for the property in full
- When you take possession of the property
- When settlement occurs
If the property is damaged before the settlement and you have not paid in full, the seller may be required to fix the damage or offer compensation, depending on your agreement.
WHAT HAPPENS IF I FIND NEW DAMAGE TO THE PROPERTY?
Typically, the settlement would still go ahead as planned.
If you find new damage or deterioration that wasn’t reported, you may not have the right to withhold the settlement, unless you can prove that the damage breaches the conditions mentioned in the contract of sale.
In either case, an expert conveyancer is the best person to talk to here. Our team at KDD Conveyancing is more than happy to assist!
I MADE AN OFFER TO BUY A PROPERTY BUT IT WAS THEN DESTROYED OR DAMAGED. CAN I WITHDRAW FROM THE OFFER?
Ending a contract is not as straightforward as it may first appear. There are many factors to consider and the best thing you can do is to get advice from a lawyer.
As described above, the extent of the damage caused to the property will affect whether you can withdraw your offer or not. There are strict time-frames and conditions associated with withdrawing an offer so make sure you chat with experts as soon as you can!
WHAT ARE YOUR RIGHTS AS THE SELLER IF THE PROPERTY IS DAMAGED PRIOR TO SETTLEMENT?
Sellers should keep their settlement agent informed about damage to the property and any steps they are taking to fix it.
For minor damage, it is up to the seller to repair it within a reasonable time. However, another option is for the buyer to receive a credit of funds at settlement as compensation for the damage.
Sellers are only obligated to repair the property to what was existing. If a buyer has plans to make upgrades after settlement, they may prefer a credit of funds to go towards this upgrade instead of a repair.
I WANT TO SELL OR REBUILD A JOINTLY-OWNED PROPERTY THAT WAS AFFECTED BY A STORM, BUSHFIRES OR FLOODS. THE OTHER OWNER DOES NOT WANT TO SELL OR REBUILD. WHAT CAN WE DO?
Both owners of the property need to agree to any major decision affecting the property. This includes leasing, selling, repairing or renovating the property.
If you and the second owner of the property can’t agree, you may need to take the matter to the Supreme Court of Western Australia and apply for a decision to be made.
If the property is under a mortgage, your lender might also need to be involved as they will want to have a say in how the insurance money is spent.
MY PROPERTY WAS BURNT DOWN OR DAMAGED (DUE TO BUSHFIRES OR FLOODS) AND I HAVE NOW GOT AN OFFER FOR IT. WHAT SHOULD I DO?
Regardless of the condition of your property, if you have been approached with an offer, take time to consider it. Do your research and speak with local real estate agents, conveyancers and lawyers about the value of your land.
Also, make sure you are honest with the buyer about the condition of the property and ensure the contract accurately describes the damage to the property. A buyer may be entitled to ask you to repair what’s considered new damage prior to settlement if it is not included in the contract.
Be diligent, weigh up your options and above all, seek professional advice.
KNOW YOUR RIGHTS BEFORE SETTLEMENT
It all comes down to communication and knowing your rights.
At KDD Conveyancing, we can help buyers and sellers who are facing tricky situations due to floods, bushfires or other types of storm damage.
For more information, please contact us at reception@kddconveyancing.com.au or (08) 9296 8717 today!
