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Insurance

Insurance: what buyers and sellers need to know

Insurance - in particular: when to get it, and when to cancel it - is an important consideration when buying and selling a property.

In Victoria, the legal risk associated with a residential property usually passes to the purchaser upon settlement. That means legal responsibility for the property remains with the vendor, until they are no longer the owner, unless the contract specifically states otherwise. This is different to other States in Australia, where the risk can pass to the purchaser shortly after the contract is signed, such as in Queensland.

Special conditions in the contract can change when the risk passes to the purchaser. In State Trustees and mortgagee-in-possession contracts, it is common to see the risk passing upon the contract being signed by the parties. And some special conditions can specify that any notices the vendor receives after the contract is signed (such as a note from a neighbour regarding the need for a new fence, or a letter from the Council's building enforcement department) are the purchaser's legal responsibility. It is important to carefully check the special conditions of each contract, to clarify exactly when risk passes to the purchaser, and whether it's all types of risk or only some types, like legal notices.

The vendor should maintain their building and contents insurance policy until settlement occurs. That way, they are covered if there is an unexpected adverse event, such as a flood, fire or public liability incident. If the building and public liability insurance for the property is covered by an active Owners Corporation, then maintaining contents and/or landlords insurance prior to settlement is still important, because building insurance doesn't tend to cover things like damage to carpets, kitchen appliances, ceilings and light fittings (which are items that often need to be replaced after a flood or storm). Public liability insurance covers medical and other expenses resulting from someone injuring themselves at the property, such as by falling on slippery steps.

Even if the contract says the vendor should maintain their insurance prior to settlement, the purchaser can't make them do this, so it's prudent for the purchaser to take out their own building, public liability and contents insurance policy once the contract becomes unconditional (or from the date of sale, if the risk passes to the purchaser from that date). If something bad happens at the property, the purchaser can then rely on their own insurance policy to save the day, and the purchaser's insurer can later pursue the vendor for reimbursement, if the vendor was at fault/should have had their own policy in place. If the property being purchased is covered by an active Owners Corporation that has its own building and contents insurance policy, then the purchaser may only need to take out contents insurance.

In Victoria, the law requires subdivisions of at least three units to have a shared building and public liability insurance policy, but many developments of three / four / five or so units on a block don't adhere to this legal requirement, by mutual consent of all the owners. That means each owner must then take out their own building, public liability and contents policy. When there are only two units on the block, the owners can choose whether they share one insurance policy, or arrange their own insurance for each unit (this situation is referred to as an inactive Owners Corporation).

Note: the above is general information and should not be considered as legal advice.

Photo by Mikhail Nilov

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