You awoke on a dreary Monday morning, after a sleepless night watching the water rise, to find your home (or your future home) had been partially or fully inundated by flood water.
The first thought through your head was either:
- I’m so glad I signed a contract to sell last week, quickly followed by: what does this mean for my contract?; or
- I’ve just contracted to buy: does the seller have to repair and/or can I get out of this contract?
You then googled “floods, conveyancing, Brisbane” and arrived here at this article (or at least that is what you should have done).
Delaying settlement & finance
What both the buyer and seller will have front of mind is satisfying any finance condition (getting the loan from your bank) and what it means for the settlement date. If your contract is the latest REIQ version, both parties have an automatic right to extend settlement by up to a cumulative 5 business days.
Finance is a different kettle of fish. A buyer’s bank may be unable to gain access to value the property, may be inundated (pardon the pun) with requests creating a backlog of work that will take time to get through and the buyer may desire extensions to the finance date under the contract (which the seller is not obliged to provide).
Buyer’s & Seller’s obligations
The position in Queensland has now long been, and in attempt to avoid legalese, that “risk” in the property passes to the Buyer by a “valid and binding contract”. This has been modified slightly in the standard REIQ contract (which you almost certainly signed), to pass “risk” to the Buyer at 5:00pm on the first business day after signing.
The passing of “risk” is balanced by an obligation on the Seller to:
- use the Property reasonably until settlement; and
- not do anything regarding the Property that may significantly alter it or result in later expenses for the Buyer.
Clear as mud, right? Let us break it down for you.
What these obligations actually mean for the seller will always be a question of fact. Did the water come in only 20cm on the lower level, and could that have been prevented by some simple sandbagging? Did the seller decline to clean off mud or remove water pooled inside the house, leading to mould or rot? Did the seller fail to remove their flood damaged furniture from inside the house or in the yard, or did they leave behind a significant amount of flood debris? These are the types of tasks that sellers might be required to complete. Conversely, declining to repaint walls and replace flooring, in other words, to “restore” the property to its pre-flooded state are things which the seller is unlikely to be required to do in a standard contract.
For the buyer, this means, and your bank likely requires, that you should have insurance in place from the first business day following settlement. Whether your insurance (as buyer or seller) covers the varying types of flood event that might have occurred will depend on your specific policy. If you intend on making an insurance claim as the Seller, please keep in mind that you are required by law (if a contract for sale was already in place when the flooding occurred) to pass any money paid to you in respect of the Property onto the Buyer at settlement.
Statutory right to terminate
If the dwelling (house) on the property has become “unfit for occupation” the Buyer has a statutory right to terminate the contract and recover any deposit paid. However, while we might call many teenagers’ bedrooms “unfit for occupation”, the threshold for this at law is quite high. During the 2011 floods one buyer, through the courts, successfully availed themselves of this statutory right to avoid purchasing an apartment in the Tennyson Reach development, which had been entirely inundated on the lower floors (where the buyer’s apartment was located).
Importantly, unless the dwelling is “unfit for occupation”, the Buyer is not able to delay settlement (outside of the five business days in the latest REIQ) or withhold/set-off payment of the purchase price. Any rights the Buyer might have for a seller’s failure to perform their obligations would permit the Buyer to pursue a claim for damages in the courts after settlement (a costly and time-consuming exercise).
2011 and 2022 stand as devastating reminders that many properties in Brisbane can be affected by severe weather events. When purchasing property, it is important that you consider the flood risk to it and the impacts this may have on future property values and on the cost of your insurance premiums. The seller is under no obligation to inform you of the flood risk, though if the seller or their agent told you, before you signed the contract, something like “the property doesn’t flood” then this may give you rights against the seller.
This flood “due diligence” is something we assist our buyers with when they are purchasing, or considering purchasing, property in Queensland.
If you need advice on any of the issues above, please get in contact with our team so that we can assist you with your specific circumstances – no two situations are ever the same.
Think Property. Think Nicholsons.