INSURANCE AND RISK – HOW DOES IT AFFECT YOU?
You’ve entered into a Contract to buy a property and the question arises about insurance. When should you insure the property?
The answer to this is quite simple and it is when you actually sign the contract though most purchasers take out insurance or at least get a cover note once the cooling off has expired.
In South Australia it is your responsibility to arrange for the insurance as soon as possible and you will be required to note the financial institution you are borrowing from on the Certificate of Currency if you are obtaining finance.
If you are purchasing strata unit than the Strata Corporation arranges for insurance on the building and common property for the property you are purchasing. However, it’s recommended that you arrange for either Contents or Landlords insurance (whichever is applicable) to protect the contents of the property which includes all internal fittings such as curtains and carpets and electrical appliances. These are all at your risk from the date of signing the contract.
If you are purchasing a property that is a Community Corporation the insurance policy will need to be checked to see if the corporation has insurance for the Buildings and common property or just the common property. This should be checked and confirmed as soon as possible after signing the contract if not beforehand.
There are four types of Contracts that are commonly used in South Australia. Here are the clauses that relate to Insurance and more importantly the risk once a contract has been signed
Australian Institute of Conveyancers Contract
Warnings – Risk and Insurance
Upon entering into this Contract the Land and any improvements on it are at the Purchasers Risk and the Purchaser should take out and maintain the necessary insurances to insure the Land and improvements against loss and damage
Clause 10 – Risk
The Land hall be at the risk of the Purchaser from the date of this Contract and the Vendor shall use the Land with reasonable care while the Vendor is in occupation or has the use of the Land.
Real Estate Institute of Australia Contract
Clause 7 – Title and Risk
7.1 Subject to Clause 7.2 from the date of this Agreement the Property shall be at the risk if the Purchaser
7.2 the Vendor must use the Property with all reasonable care so as to maintain its current state of repair and condition, fair wear and tear excluded
7.3 The Certificate of Title will be conclusive evidence of the Vendor’s title.
Auctioneers and Appraisers Contract
Clause 5 – Purchaser’s Risk
The property will be at the risk of the Purchaser from the date of this Contract and without limited the effect there the Purchaser is obliged to meet the cost of any repairs (including but not limited to) for any electrical, mechanical or structural problems existing after the date of the Contract. The Vendor will notify the Purchaser of any breakdown or damage to the property needing attention within a reasonable time. The Vendor will reasonably maintain and use the property until settlement but is not liable for the repairs of breakdown costs unless caused by the Vendor’s negligence. The Purchaser buys the property subject to the notified works in the Schedule above.
Law Society of SA Contract
Clause 13 – Risk and Use of the Land
13.1 Subject to clause 13.2, on and from the Execution Date the Assets shall be at risk of the Purchaser.
13.2 If and for so long as between the Execution Date and Settlement the Vendor or a third party occupies or uses any of the Assets, the Vendor must ensure the Vendor or that third party takes reasonable care of such Assets.
13.3 Subject to clause 13.2, if before Settlement there occurs any loss, damage, destruction, dilapidation, infestation or mechanical breakdown of the Assets from any cause:
13.3.1 the Sale is not affected; and
13.3.2 the Purchaser is not entitled to damages or a reduced Price.
13.4 On and from the Execution Date, the Purchaser must indemnify and hold harmless the Vendor against all liability in respect of the Assets, except to the extent caused or contributed to by the Vendor’s wilful act, negligence or default under this contract or failure to take reasonable steps to mitigate such liability. The Purchaser’s indemnity under this clause 13.4 is a continuing obligation, except if this contract is terminated prior to Settlement occurring, in which case the Purchaser’s indemnity under this clause 13.4 ceases on the date of termination
Four contracts which all have different clauses but they all really say the same thing and that is that you as the Purchaser have the risk from the day you sign the contract.
It is advisable that you obtain at least a cover note over the property either as soon as you have signed a contract or prior to the Cooling Off Period expiring. You will need to check with your insurance company as to how long a cover note will be applicable. If longer than a month then you should take out the full insurance cover required to safeguard your investment. This will be required prior to settlement by any bank that you are obtaining finance from as well.
In the event that something occurs that is an insurable claim then it will be your Insurance Company and not the Vendors insurance Company that the claim will be processed with.
You ask – Is this really necessary? What could happen? Well for instance if there is a housefire that damages part or all of the building then the insurance will be needed and yes you as the Purchaser have that risk even though you don’t actually own the property. And yes these thing do actually happen!
Make sure you talk to your conveyancer to find out what type of insurance is required and then call your insurance company or broker to get the insurance in place.
If possible get a conveyancer to check the Contract and Form 1 before you sign so that you are fully informed early.