Key Takeaway Points
- The impending threat of Cyclone Alfred has led to uncertainty for buyers and sellers of property in South-East Queensland.
- In Queensland risk passes to a buyer from 5pm on the first business day after the contract date. A buyer is therefore required to insure the property from that time.
- On 4 March the insurance industry put in place an embargo on new policies and imposed restrictions on upgrades to coverage in potentially affected areas.
- Damage to properties prior to settlement will raise questions over responsibility for reinstatement.
With Cyclone Alfred looming, buyers and sellers currently under contract (or about to enter into a contract) in South-East Queensland should be aware of their contractual rights and obligations if damage or destruction occurs prior to settlement.
Insurers have placed an embargo on new policies or changes to existing policies in areas likely to be impacted by Cyclone Alfred. At best insurance companies may allow new policies to be taken out but will likely impose a no-claim period for cyclone damage to protect themselves from the predicted surge in claims.
What is the risk clause in QLD property contracts?
In contrast to other States a buyer of property in Queensland using the standard REIQ contracts assumes risk for that property from 5pm on the first business day after the contract date.
This makes it imperative for a buyer in Queensland to put in place the appropriate insurance coverage by that deadline.
How does Cyclone Alfred impact risk for QLD buyers?
With the embargo in place our suggestion would be to not sign a contract until Cyclone Alfred has passed and you have been given the opportunity to engage an appropriately qualified professional to assess any damage.
For those buyers already under contract, and with the appropriate insurance in place, you should be aware that the responsibility for any repairs required as a result of cyclone damage will be your responsibility, and you will need to look to your insurer in such circumstances. You will not be entitled to terminate because of cyclone damage. You will be required to settle.
You may be able to delay settlement but not terminate
Cyclone Alfred is considered a ‘Delay Event’ under REIQ Contracts. This will allow either party to delay settlement but will not allow either party to terminate as a result of damage to or destruction of the property.
Remember the cooling off period
Buyers of residential properties need to also be alive to the five day cooling off period (and the termination penalty of 0.25% of the purchase price that could apply if that right is exercised), as that may provide a way out of an uncertain situation in the aftermath of Cyclone Alfred.
Next steps
It is essential that buyers and sellers of property in Queensland who are under contract or about to enter into a contract are aware of their rights and obligations against the backdrop of Cyclone Alfred.
Our Property team is happy to assist if you have any queries on your contractual rights and obligations at this time or in the aftermath of Cyclone Alfred.
