What insurance should you consider when buying or selling property?

Often overlooked, insurance is an important consideration whether you are buying or selling a property.

While insurance can be expensive, it can provide valuable peace of mind and financial protection should something unexpected occur.

Generally, sellers are required to take reasonable care of the property. If damage occurs, a buyer may have certain rights, including the ability to seek compensation. However, relying solely on those rights can expose you to significant and unnecessary risk.

Why insurance matters for buyers

If you have owned property before, you are likely already familiar with insurance coverage and premiums, however new buyers or buyers who have not gone through this process in a long time are unsure why they need insurance, when they should arrange it and what risks they may face if they don’t have the right cover in place.

When purchasing a property under the terms of the standard REIQ Contract, the risk will pass to the buyer at 5:00 pm on the first business day after all parties have signed the contract.

Buyers should make enquiries about insurance and arrange appropriate cover with an insurer or insurance broker before entering into a contract wherever possible. If this is not practical, insurance should be obtained as soon as possible after the contract has been executed.

Depending on the circumstances, buyers should consider speaking with their insurance provider to ask what type of insurance they can take out, but some are:

• Building insurance;
• Landlord insurance if there is a tenant in place;
• Contents insurance; and
• Public liability insurance.

Damage to the property

If the property is damaged between the date the Contract is signed by all parties and Settlement (for example, due to a severe weather event, fire or vandalism) a buyer is generally still required to settle.

An exception to this is where a dwelling, house or residential unit is damaged or destroyed to the extent that it is unfit for occupation as a residence and a buyer has not yet taken possession.

Special Conditions – Risk to be the Seller’s until Settlement

Buyers may encounter special conditions whereby the property remains at the seller’s risk until settlement.

While these clauses may offer some additional protection, they do not necessarily relieve a buyer from the obligation to complete settlement unless the exception outlined above applies. Further to this, in application, you are unlikely to be able to make a claim under the seller’s insurance policy, or compel the seller to do so on your behalf. You may however, ask the Seller for compensation if they do make a claim and the property is their risk until settlement.

Purchasing within a body corporate (Community Title Schemes)

If you are purchasing a property within a body corporate we recommend speaking with your insurance providing and obtaining as a minimum contents insurance for items within the lot, including carpets, curtains and internal blinds, together with public liability insurance covering the interior of the lot. Your insurance provider will advise you what other type of insurance is available and required.

If you have been provided a Form 2 Seller Disclosure, the Form 33 Body Corporate Information Certificate will normally state that an occupier is responsible for insuring the contents of the property and any public liability risks..

Further to this, that the owner of each property is responsible for insuring buildings that do not share a common wall if the scheme is registered under a standard format plan of subdivision, unless the body corporate has set up a voluntary insurance scheme and the owner has opted-in.

Title Insurance

We recommend that buyers also consider obtaining title insurance.

Depending on the insurer and policy selected, title insurance may provide cover for certain unknown risks, including unapproved building works, registration gaps, fraud, forgery, identity theft, boundary and survey issues, as well as some known matters and risks arising after settlement.

As with any insurance product, cover is subject to exclusions and policy terms. Nevertheless, making enquiries about title insurance would be a prudent step in protecting your investment.

Please contact us if you’d like for us to assist you with your purchase and refer you to a relevant company for title insurance.

Why insurance matters for sellers

As mentioned above, the property generally becomes the buyer’s risk from 5:00pm on the first business day after the Contract Date. In spite of that, Sellers should not cancel their insurance until settlement occurs as anything can happen such as a buyer not having insurance obtained or settlement not occurring for any unforeseen reasons.  

There are a number of circumstances in which risk may revert to a seller without notice. This includes after the contract has become unconditional. Without retaining the current/adequate cover, sellers may still be exposed to considerable loss. 

In some circumstances, a buyer may be entitled to make a claim against the seller’s insurance before taking possession, or completing settlement.

Conclusion

Property transactions involve significant financial commitments, and insurance can help protect you from unexpected risks between signing the Contract and Settlement. Whether you’re buying or selling, ensuring the right insurance can provide peace of mind and help reduce the financial impact of unforeseen events.

Before entering into a contract, buyers and sellers should speak with their insurer, insurance broker, and legal representative to ensure they understand their responsibilities, potential risks, and insurance requirements.

Taking the time to arrange appropriate cover early can help protect your interests throughout the transaction.

Please contact our team if you wuld like us to assist you with your property sale or purchase.