The year 2013 has opened with natural disasters across
Queensland. In addition to the impact on people and property those
natural disasters have, they can also create significant
difficulties for properties under contracts of sale.
Adjustments were made to the standard REIQ contracts following
the January 2011 floods to better deal with some of the issues
created by natural disasters. With the worst of the damage behind
us it is worth looking at how natural disasters affect property
under contracts of sale and how the law responds.
Damage or Destruction.
The standard REIQ contract provides that risk in a property
passes to the buyer from 5.00pm on the first business day after the
contract is signed 1. Adverse events arising after that
date generally become the buyer's issue. For this reason buyers
should take out appropriate insurance as soon as a contract is
signed. A seller however is required to take reasonable care of the
property up until settlement.
The Property Land Act however provides that if a dwelling is
destroyed or becomes unfit for occupation before settlement then
the buyer can terminate the contract. 2
As a rule of thumb, if a dwelling is damaged so that it cannot
be occupied then the buyer can terminate, otherwise the buyer must
accept the property with the damage and rely on insurance.
Time of the Essence
A key feature of conveyancing practice in Queensland is that
time is of the essence. 3 If a party fails to settle on
the due date, then the other party has the option to terminate the
contract and claim damages. Following the January 2011 floods, the
REIQ Contract was amended so that the right of a party to terminate
a contract for the failure of the other to complete is suspended
until the affected party is no longer prevented by the natural
disaster from completing settlement. The affected party must take
all reasonable steps to minimise the impact on their ability to
settle and settlement must occur within five to ten business days
once the affected party is able to settle.
This clause is directed at the situation where a settlement
cannot occur because documents cannot be signed or delivered or
banks and solicitors are unable to operate due to a natural
Confirmation of Title
Where a buyer's lawyer is unable to verify the seller's
title on the date of settlement due to the Land Titles Office
computer system being inoperative time ceases to be of the essence.
Once the computer system is operational again the parties are
entitled to call for settlement within one to seven business days.
In the unfortunate event that you are involved in a property
transaction that is affected by a natural disaster, it is important
to know that the law attempts to address some of the complications
which should reduce the uncertainty for the parties. It also
highlights that it is critically important for both parties to
maintain insurance of their properties during the contract period
until settlement is complete.
1 Clause 8.1 of the REIQ Residential House and
Land Contract (9th edition)
2 Section 64 of the Property Law
3 Clause 6.1 of the REIQ Contract
4 Section 70 of the Property Law
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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Whilst option to purchase clauses are more in commercial properties, they are now being included in residential leases.
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