What happens when a property is damaged by fire just days before
settlement? We recently assisted a vendor client who found himself
in this unwelcome situation, courtesy of the purchasers.
The purchasers, while undertaking the pre-settlement inspection
four days before settlement, caused an electrical fire in the
property. The Fire Service were called and needed to break down the
garage door to gain entry and fight the fire. The damage was mainly
superficial, namely burnt carpet, smoke damage to chattels, some
charring to particleboard flooring and floor joists, and of course,
a mangled garage door.
The vendor had already moved out of the property. The purchasers
were less than keen to settle, having had quite a frightening
experience in the property.
Clause 4.2 of the Agreement for Sale and Purchase applies. The
essential question is whether the property is tenantable on the
settlement date. If the property isn't, the purchaser has two
cancel and receive a refund of any money paid; or
settle: in full if the vendor's insurance company will
reinstate the property. Or, if reinstatement isn't an option,
less an amount equal to the insurance money received by the
If the property is tenantable, the purchaser is obliged to
settle but less an amount that will cover the reasonable cost of
reinstatement or repair. If the vendor's insurers will fully
reinstate, then the purchaser needs to settle in full.
The Agreement does not define "tenantable". We
interpret it as meaning "liveable" i.e. is the property
fully serviced with power, water, telecommunications and is it
secure and safe?
In our case, we urged the vendor's insurance assessor to
work quickly to make the property tenantable by the settlement date
– including making the garage door secure, removing all burnt
carpet, placing a temporary cover over the burnt floor area,
checking the entire electrical system and restoring power, and
de-odourising the property. The assessor then provided a statement
confirming that the property was tenantable on the settlement date
and would be reinstated by the insurance company within the next
couple of weeks. Accordingly, the purchasers were obliged to
This situation shows the importance of insurance – vendors
need to maintain insurance right up to the settlement day. If
settlement is delayed, vendors should ensure that their insurance
is extended until the new settlement date.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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