New Zealand: Selling an earthquake-damaged house with EQC/Insurance Claims

Property

The importance of understanding the EQC/insurance claims history of a property prior to sale is becoming increasingly significant for vendors.

The key issue for vendors (and agents) is not to misrepresent the earthquake claim history of the property with the potential problem of a purchaser "coming back" and suing the vendor following sale due to incorrect representations.

When acting for a vendor, the person drafting the contract needs to be carefully considering who lodged the EQC/insurance claims arising from the earthquakes, what cash was paid out and what repair/rebuild work was completed and by who.

Once the facts have been determined then the EQC/insurance clauses should clearly reflect the history of the claims process for the property.

Common problems we see are when a contract says that the vendor lodged the EQC/insurance claims, when in fact it was a previous owner, or perhaps 2 or 3 owners ago.

Or where the incorrect EQC claim numbers and/or insurance claim numbers are stated.

A very concerning issue is where a contract might state that the vendor agrees to assign its rights under its insurance claim. The problem here is that generally speaking it is not possible to assign an insurance claim and even if you can it may only be possible to assign limited rights. This is likely to be a serious issue for a purchaser who might have been relying on the vendor's representation that they will be entitled to fully benefit from the old insurance claim.

If there was a cash settlement, make it clear that the vendor will be retaining that cash or whether they will be happy to pay that money to the purchaser. Likewise, if repair work was carried out, make sure that all necessary building consents were acquired and code compliance certificates issued. Otherwise, a purchaser could "come back" to the vendor and sue for damages for any losses in this regard.

If a vendor is selling an "as is, where is" house then it is important to state clearly the claim history, that the vendor will be retaining all insurance money and the vendor will not be completing any repairs and that the purchaser is making their offer based solely on their own judgement. The purchaser may well want a clause stating that the insurer does not have the right to demolish the buildings which will be fine provided that checks are completed to ensure this is the case.

When selling an "as is, where is" house it is also important to consider the "risk and insurance" clause. As it is unlikely that the house will be fully insured (if at all), and that the purchaser will be paying a discounted amount (due to the damaged building), then ideally it should be stated that risk in the property should pass to the purchaser on the signing of the agreement or at the very least once the contract becomes unconditional. Therefore if the house gets damaged (by say fire or earthquake) prior to settlement then the purchaser will still have to pay up in full.

Another serious issue which is currently appearing these days is with the sale of earthquake damaged cross lease properties. Probably a lot of cross-lease owners are unaware that if they try and sell their damaged townhouse they will remain liable to the other cross-lease owners to fully repair their townhouse, even after sale. This issue is very complicated and requires careful thought to protect the vendor post-sale from any of the other neighbouring townhouses deciding to sue the vendor because the repair work was never completed at the time of damage.

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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