Who bears the risk of property damage between signing a contract and settlement?

A common misconception among Gold Coast property buyers is that the seller remains entirely responsible for the property until the money is handed over on settlement day. This misunderstanding leaves thousands of buyers exposed to catastrophic financial risks every year.

If you sign a contract for a home on a Monday, and a freak storm or fire destroys the roof on Tuesday, who is responsible for the damages?

In Queensland, the answer is generally the buyer.

The Transfer of Risk During Conveyancing

Under standard standard REIQ (Real Estate Institute of Queensland) contracts, the common law rule applies: the risk of damage to a property transfers to the buyer upon 5:00 PM on the first business day after the contract is signed.

Because of this, it is standard legal advice that as a buyer, your first step after signing a contract is to take out a robust home and building insurance policy naming yourself as the interested party. Do this instantly. If an accident, vandalism, or storm occurs while you wait for your finance or building and pest inspections to clear, your insurance will need to cover the repairs.

What if I don’t have insurance?

If a major event substantially destroys the house before you secure insurance, you may be able to rely on statutory protections under the Property Law Act to rescind the contract if the dwelling has become completely unfit for occupation.

However, for smaller damages, smashed windows, a broken fence from a falling tree, or minor water damage, you are generally still obligated to settle the purchase at the full price and fund the repairs out of your own pocket.

Advice for Sellers: Never Cancel Insurance Early

As a seller, you might assume that because the buyer now holds the risk, you can cancel your own home insurance premium to save a few dollars. This is a dangerous mistake.

We strongly advise our clients to keep their insurance policies active right up to the literal minute of final settlement.

Why? Because contracts crash.

With the introduction of the new Form 2 Seller Disclosure Statement laws in Queensland , a buyer is legally empowered to terminate a contract at any point before settlement if there is a mistake in your disclosure document. If the house sustains severe damage while under contract, and the buyer successfully uses a legal loophole or finance clause to terminate the contract, the property bounces straight back to you.

If you canceled your insurance, you will be holding an unsellable, damaged asset with no insurance payout to fix it. Let the insurance premiums overlap; the peace of mind is worth the cost.

Related Topics

• Who pays for a Form 2 Seller Disclosure?
• What happens on settlement day?
• First Home Owner Grant Explained

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1. Property Law Act 2023 (Qld) - Outlines statutory protections for buyers in the event a premises becomes unfit for human habitation prior to settlement.
2. Standard REIQ Contract for Houses and Residential Land - Standard contractual terms specifically transferring the risk to the buyer at 5:00 PM on the first business day following the contract date.