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
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.
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.
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