Risky Business – Cyclones, Insurance embargos and nervous buyers
Insurance embargos and nervous buyers
When cyclones are looming (an active system is being followed by the Bureau of Meteorology) some insurers have previously found the risk of insuring properties too great to accept during this time.
If insurers refuse cover, buyers may be inclined to terminate their contracts under the cooling off period until the weather system abates. The risk here, of course, is that the parties may be reluctant to commit again, or may have a change of heart, or may find an alternative property/offer more attractive. In short, the deal could be off because of a short term weather pattern.
“… the deal could be off because of a short term weather pattern…”
What The Contract Says
Clause 8.1 of the REIQ contract for both house and land sales and CTS lot sales provides that “the Property is at the Buyer’s risk from 5 PM on the first Business Day after the Contract Date.”
So, if for example, the garage attached to a house, or a part of the house is damaged as a result of cyclonic winds during the course of the contract, the buyer will still be required to complete the contract and pay the full purchase price notwithstanding the resultant damage. No set-off is allowed, and it is unlikely a seller would be prepared to make a claim on their own insurance and face higher premiums in years to come as a result.
There are limited exceptions, entitling a buyer to terminate where the dwelling is destroyed or damaged so that it is unfit for occupation as a dwelling, but of course, these exceptions are not something that parties can rely on it as no one knows what kind of damage will be occasioned prior to the cyclone’s arrival.
We recommend a simple condition, like the one below, be inserted into all contracts while active systems are present to alleviate any concerns the parties might have.
The benefits are numerous:
- Buyers ought not be concerned about their risk profile, given that most insurers will lift their embargo and insure once the system has passed;
- Sellers ought not be bothered as no prudent seller would cancel their insurance until after settlement passes anyway;
- Agents who have worked hard to conclude a deal can avoid it falling over
See the condition here:
Notwithstanding the Terms of Contract, the parties agree that the Property shall remain at the Seller’s risk until Settlement.