Property Insurance

When buying a residential property one of the very first things you should do after signing a contract of sale is to take out property insurance.

Why now and not at settlement when title passes? Because risk passes immediately!

Risk

Under the standard form REIQ contract in Qld (both for houses and units) the property is at the buyer’s risk from 5pm on the first business day after the contract is signed.

What happens if the property is damaged?

Despite risk passing to the buyer, the seller still has an obligation to take reasonable care of the property until settlement.

If the property is damaged between contract signing and settlement, you are still required to settle in accordance with the contract (unless the property becomes unfit for occupation).
In some circumstances you may be able to seek compensation from the seller and/or gain the benefit of their insurance policy, but you should not rely on this! Why? Because:

1. the seller may not have insurance;
2. the seller may have cancelled their insurance policy (although they should be advised not to cancel until settlement); or
3. the seller does have insurance, but the level of damage may not be covered by their policy.

If the property is in community title/strata scheme, isn’t property insurance the responsibility of the body corporate?

Yes (sometimes), but you should satisfy yourself that the level of insurance is adequate!
The body corporate only has an obligation to insure buildings for their full replacement value within the scheme if:
1. the lots are created under a building format plan or volumetric format plan (ie. multiple units within the one building); or
2. the lot has a common wall with a building on an adjoining lot (ie. townhouses).
If the buildings are stand-alone, the body corporate may establish a voluntary insurance scheme. In this instance we recommend you obtain a cover note at the very least, until you know what level of insurance the body corporate has or does not have for your property.
If you are purchasing a unit or apartment, you should instruct your lawyer to obtain the body corporate’s insurance information as part of your searches.