insuring a new property

Are you buying a new property? You will no doubt be aware of the need for a comprehensive insurance policy to protect your asset, but you might not have given much thought to the timing.

It can be logical to think that your insurance should apply from settlement date. But imagine a fire breaking out, a storm causing excessive hail damage, or even worse, taking the roof off between the time you sign the contract and settlement. You could potentially be left in a tricky position if your insurance doesn’t cover the property from the time you signed the contract.

When something unexpected happens, it can be difficult to determine who is responsible for paying for the damage. The type and level of damage can also have an impact on settlement of the property, as well as who is expected to pay for it.

Extensive damage means a complex situation

If the damage is extensive or total, the cost of repairs falls to the seller. In this case, you may also have the option to cancel settlement if the property is not in the condition promised on the contract of sale. An example of this is where the property burns down or is extensively damaged by fire.

If the seller decides to repair or rebuild the property, and has insurance cover in place, they should be able to claim against their policy for the costs. In this instance, settlement may not be able to be cancelled.

The situation may get more complex if they do not have any insurance cover for the property, and do not have the means to pay for repairs. In such a case, the sale may fall through altogether.

What happens if the damage is more minor?

If the damage is relatively small or ‘partial’, the ball may be in your court regarding the cost of repairs. You are unlikely to be able to cancel settlement in such a scenario.

Both these potential situations emphasise why it’s so important to have replacement insurance in place from the moment you sign the sale contract. After all, once you’ve signed, you have a stake in the property in the form of a cash deposit.

What does the law say?

The law regarding the time at which the purchaser becomes responsible for the property can vary from state to state.

In Queensland for instance, the terms of contract usually transfer responsibility to the purchaser at 5pm on the day after both parties have signed it. This may be different in other states and territories, however.

There is no legal obligation to buy insurance cover. But whatever the terms of sale dictate, taking out an insurance cover note immediately is worth considering. This is because there is no guarantee that the seller will have a current paid-up policy in place if anything goes wrong.

If you’re borrowing to pay for the property, it’s also highly likely that your lender will require you to take out a policy as soon as possible as part of the loan agreement.

Types of cover for real estate

Types of insurance include public liability for a block of land, and liability and building replacement cover for a free-standing house. The policy should also provide cover for any fixtures and fittings such as carpets, fixed appliances, light fittings, and curtains or blinds.

In the case of an apartment, the body corporate or owners’ corporation is responsible for covering common property and building replacement through a strata insurance policy. Contents cover financially protects the internal fixtures and fittings and is up to the owner to purchase.

Landlord insurance is recommended if you are going to rent the property to tenants. This provides cover for property damage by tenants, liability and lost rent. If the property already has tenants renting it at the time of purchase, you should take out a landlord policy immediately.

The need to obtain professional advice

If you are unsure of when you become responsible for property repairs and damage, you should contact your state-based solicitor for assistance.

But no matter the location of your property, at National Property Buyers, we recommend getting building insurance as soon as you have signed on the dotted line, whether the seller has signed the contract or not. Doing so helps ensure you have all bases covered, just in case things do not go according to plan.