In New South Wales a vendor carries the risk of loss or damage to property and the risk does not pass to a purchaser until the sale is completed, or the purchaser's earlier occupation of the property. The practical effect is that when purchasing property a purchaser is under no obligation to insure the property until completion or possession. The vendor should continue its insurance until completion.
But a purchaser can rescind a contract if the property is "substantially damaged" after the making of the contract and before the risk passes to the purchaser. Substantial damage means damage that makes the property materially different from that which the purchaser contracted to buy.
A purchaser may claim a reduction in the purchase price if the property is damaged after the making of the contract and before the risk passes to the purchaser, unless the damage is caused by the negligence of the purchaser.
If the purchaser's claim for reduction is not resolved prior to completion, the purchaser has a right to claim an amount from the vendor after completion as a debt.
Contracting out
1. Dwelling Houses
It is not possible to contract out of, remove, or vary a purchaser's statutory rights about the passing of risk for a place of residence.
2. Commercial/Other Property
A vendor can contract out of the provisions in the Act when the property sold is commercial property, to ensure the risk passes on exchange to the purchaser. This means a purchaser needs to arrange for its own insurance upon exchange of contracts. In the absence of any contracting out clause, the risk remains with the vendor until completion and the vendor should maintain insurance until completion.
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.
