Do You Need Insurance After Exchange of Contracts in NSW?

KEY TAKE-OUTS:

• In NSW, the vendor generally remains responsible for insuring a property until settlement, unless the purchaser takes possession earlier

• If a property is damaged before settlement, the purchaser may be entitled to repairs, a settlement adjustment or, in cases of substantial damage, potentially rescind the contract

• A final inspection before settlement allows the purchaser to identify any damages or changes to the property.

• Purchasers should arrange appropriate building insurance from settlement, ot earlier if taking possession, and confirm their lender’s insurance requirements to avoid settlement delays.

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Who Is Responsible for Property Insurance Before Settlement?

In NSW, the vendor generally remains responsible for insuring the property until settlement.

However, if the purchaser takes possession of the property before settlement, it is usually the purchaser’s responsibility to ensure the property is insured from the date of early occupation.

If you are unsure about your insurance obligations or when responsibility for the property passes to you, speak with our Conveyancers for advice specific to your circumstances. Having the right cover in place protects each party’s interests and reduces the risk of disputes if the property is damaged.

 

What Happens If a Property Is Damaged Before Settlement?

A lot can happen to a property in the weeks between exchange and settlement. From accidental damage while moving furniture or damage caused by tenants, to more serious events such as storms, fires or flooding.

What Happens If the Damage Is Minor

The purchaser is entitled to receive the property in the same condition as it was in when contracts were exchanged, allowing for fair wear and tear.

Before settlement, the purchaser is entitled to carry out a final inspection of the property. This provides an opportunity to check that the property remains in the expected condition and that any agreed inclusions are still in place.

If minor damage or other issues are identified during the inspection, the purchaser’s conveyancer can notify the vendor’s conveyancer. The parties can then negotiate an appropriate solution, which may include the vendor arranging repairs before settlement or agreeing to an adjustment at settlement to allow the purchaser to arrange the repairs after settlement.

What Happens If the Damage Is Substantial

If a property is substantially damaged between unconditional exchange and settlement, the purchaser may have the right to rescind the Contract and recover any deposit already paid if they no longer wish to proceed with the purchase.

Generally, substantial damage means damage that has made the property materially different from the property the purchaser originally agreed to buy. However, whether damage is considered “substantial” is determined on a case-by-case basis. The Courts consider the individual circumstances and a range of factors when determining whether the threshold for substantial damage has been met.

If the property you are purchasing suffers significant damage before settlement, it is important to speak with your Conveyancer as soon as possible. They can explain your rights and the options available to you based on your circumstances.

Rescinding the Contract for Sale is not necessarily the only option available to a purchaser. If the purchaser wishes to continue with the purchase, they may be able to negotiate a reduction in the purchase price at settlement. The amount of any adjustment will depend on the nature and extent of the damage and what is considered just and equitable in the circumstances.

 

When Should You Insure Your Property in NSW?

In NSW, the risk of damage to a property generally passes to the purchaser at the earlier of settlement or when the purchaser takes possession of the property.

This means that if you move into the property before settlement, you may become responsible for any damage that occurs from events such as fire, flooding, storms or other unforeseen circumstances, even though legal ownership of the property has not yet transferred to you.

To help protect yourself from unexpected costs, it is important to ensure appropriate building insurance is in place from settlement, or earlier if you take possession of the property before settlement.

 

Lender Requirements – Insurance and Your Home Loan

If you are financing your property purchase, your lender will generally require evidence that appropriate building insurance is in place before releasing the loan funds. The insurance policy will typically need to note the lender as an interested party, helping to protect the lender’s interest in the property.

Failing to arrange the required insurance may result in settlement being delayed or the lender withholding the loan funds. To avoid unnecessary delays, it is important to confirm your lender’s insurance requirements before settlement.