Australia: Natural disasters - consequences for contracts of sale in Queensland

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 disaster.

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. ⁴

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.

Footnotes

¹ Clause 8.1 of the REIQ Residential House and Land Contract (9^th edition)

² Section 64 of the Property Law Act

³ Clause 6.1 of the REIQ Contract (9^th edition)

⁴ Section 70 of the Property Law Act

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.