What to do if your property is damaged between exchange and settlement?

With the wild weather in New South Wales of late, the question has come up – what happens if the property you are buying is damaged between exchanging contracts and settlement? What are your rights? Does the vendor have to fix the damage? Do you have to settle?

Property law

Part 4 Division 7 of the Conveyancing Act 1919 (NSW) offers some protection to purchasers if the property is damaged.  Exactly what protection is available will depend on the extent of the damage.

Minor damage

If the damage is minor then there are a number of options:

  • the owner of the property may agree to make the repairs to the property before settlement; or
  • an abatement (or reduction) of the purchase price may be negotiated for the loss of value or the agreed cost of the rectification works.

What’s appropriate will depend on the circumstances of each case.

For example, if you have purchased a property and need to move in because you have given notice to your landlord, it may suit you better to negotiate an abatement of the purchase price and make the repairs yourself once you have moved in.  Keep in mind though that it is not just a matter of the cost of rectification but also the inconvenience of having to make the repairs.

It may be the vendor would prefer to carry out the repairs prior to settlement and claim it on their insurance particularly if the damage was caused by a tenant.

Substantial damage 

In the event that the property has been substantially damaged so as to “..render the land materially different from that which was purchased…” you may have grounds to rescind (that is, pull out of) the contract and the deposit and any other monies paid in accordance with the Contract refunded to you.  You need to be able to show that you would not have purchased the property if the damage already existed when you first inspected it.

The Courts will consider various factors when a Contract is rescinded as a result of damage.  For example, if you were purchasing the property with plans to demolish the existing house and develop the land, it is less likely that the Courts will consider it reasonable to allow the rescission since the damage would not be interfering with your intended demolition.

The Conveyancing Act sets out strict timelines to exercise rights arising from damage to property, so it is essential that you do a final inspection of the property before settlement and as soon as you become aware of any damage you should discuss your options with your solicitor or conveyancer.

Contact Shire Legal on 9526 3444 if you have any questions.


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