Why you should arrange your home insurance before you sign the contract

By Tracy Pratt, Lawyer at Hillhouse Legal Partners
| 4 min. read

Key takeaways

  • People don’t realise that under the standard REIQ contract when they sign a contract to buy a house, unit or commercial building the risk of that property passes to them as Buyer the next business day after signing the contract.
  • If the buildings on the property are damaged or need to be reinstated then the buyer may be contractually obliged to buy the property for the full purchase price even if, for example, a cyclone has destroyed or severely damaged the buildings on the land.
  • If you are considering buying a house, unit or commercial building there are a few things you need to do including obtaining a cover note from an insurance company prior to signing any contract and make sure you have a cover note or insurance as soon as you sign any contract.

By Tracy Pratt and Nikki Kumar

A lot of people don’t realise that, under the standard REIQ contract, when a contract is signed to buy a house, unit or commercial building, the risk of that property passes to the Buyer the next business day after signing the contract.

This is regardless of the contract not being unconditional and of the funds not transferring to the seller as yet.

This means that if the buildings on the property are damaged or need to be reinstated, then the buyer may be contractually obliged to buy the property for the full purchase price even if, for example, a cyclone has destroyed or severely damaged the buildings on the land.

The buyer can’t argue that the contract has been frustrated because of the damage or destruction of the buildings. 

This is because legally a contract for the sale of land (which this sort of contract is) can only be frustrated if there is a radical change that results in the Seller being unable to deliver the title in the land. 

There are almost no circumstances where that will occur except the possibility of government resumption. 

Usually, buildings on the land being destroyed is not relevant to the title of the land and, therefore, you as a purchaser would need to complete a purchase even if the house or building has been severely damaged.

There are some circumstances where a buyer who has not taken out insurance may be able to make a claim on the Seller’s insurance. 

However, those are discrete circumstances and often result in lengthy and complex litigation between the Buyer, Seller and the insurance company.

The moral of the story is, if you are considering buying a house, unit or commercial building you should also:

  • investigate obtaining a cover note from an insurance company prior to signing any contract:
  • make sure you have a cover note or insurance as soon as you sign any contract.

Tracy Pratt and Nikki Kumar, our conveyancing experts at Hillhouse Legal Partners, can help you with insurance or risk questions and any other questions or issues that may arise in this most important transaction. 

For more information or to discuss your individual circumstances, contact Tracy at tracy@hillhouse.com.au.

The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.