Damage between contract & settlement

From: Ken .

I have a problem, a little background -

I have a signed contract on an IP, and just prior to settlement, there was a small fire in the house (fire brigade attended). Some floor needs replacing and a complete paint and re carpet due to smoke water and fire damage.

I was informed by the vendor that their insurance would fix everything up, including electrical safety check. I was happy with this and was willing to extend settlement to allow this to be done.

My solicitor has just informed me that he has received a letter stating that the vendor wants to lower the contract price and for me to take the property as is. I have instructed my solicitor to write back telling the vendor-
1.That I am quite happy to pay the contract price for the property with it repaired to the pre fire condition.
2. The discount offered would not be enough for me to do all necessary repairs and replacements.

Could anybody (or everybody) advise me on where I stand in this situation, where it may lead from here and what options are open to me depending on the response from the vendor to my reply.

Thanks in advance, at least property is never boring, always some challenge.

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Reply: 1
From: Greg Mitchell


If I was you I would be hearing alarm bells!

The vendor is/has either
1. Made a claim on insurance and hoping to pocket some /all of it

2. Trying to get you to do all the leg work for the repairs at the same time reducing the contract price marginally.

If you are really keen on the property get a realistic quote add 10%- 20% for your time & effort then deduct that (plus the estimated loss of rent during the repairs) from the contract price.

Don't forget the repairs will not be claimable in full in the first year as they will be considered a capital cost.

Remember you are in the box seat, don't be pushed into a bad deal, good deals happen several times every week.


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Reply: 2
From: Ian Findlay

Hi Ken,

As we were buying our last IP, our solicitor specifically pointed out that
after signing the contract we would be liable for decrease in value of the
property and to make sure that it was properly insured. On the other hand we
would get any benefit if property prices increased.

I guess then that you are liable, did you take out insurance? What does your
solicitor advice, after all thats what you are paying them for

This is in QLD, whwre you are might be different.

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Reply: 2.1
From: The Wife


Agree with what everyone above has said,

I want to stress the importance of insurance when purchasing a house, when I sign a contract, I then use my mobile phone, ( whilst the contract is still sitting in front of me), and call for a cover note over the property I have just signed on.

I have the insurance number in the memory of my phone, it takes 2 minutes to do this, and THEN I get up and leave.

~Life is a daring adventure, or nothing at all~
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Reply: 3
From: Terry Avery

Hi Ken,

You have found yourself in a bit of a predicament.

My solicitor advises me on each purchase that I am responsible for insurance
from the date of exchange of contracts so your vendor probably found that
his insurance company won't cover it hence the new offer of a lower price.

I think your choices are limited to making an offer low enough that will
allow you to repair the damage back to new condition and with a margin for
profit (or error) or to walk away from the deal.

Sorry this is not terribly inspiring advice, hopefully others on the forum
can be more creative and helpful.


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Reply: 4
From: Robert Forward

Hi Ken

Insurance should be taken out from the date of signing the contract.

If you for some reason sign a contract with no clauses and the house burns down then you still need to continue with settlement.

Ken, you should look at accepting the house but only if it's been radically reduced in price. Have a building inspection completed and get a quote or 3 then add in the loss of rent or you can make it that settlement occurs only after you have had the property fixed. This way you don't need to be paying for any interest on the property whilst not earning an income.

If the Vendors aren't willing to go with your offer or you want to walk away drop me a line I'll have a look the deal...

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Reply: 2.2
From: Rolf Latham

Really ?

Usually title and therefore benefit and libility does not pass to buyer until settlement complete - indeed most contract sepcifically state liability for insurance to remain with vendor (at least the ones Ive seen )

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Reply: 5
From: Nigel Kibel


What state are you in? If it's Victoria, let me know and I will have our solicitor provide you advice on your options free of charge.

Nigel Kibel
The Investment Institute
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Reply: 2.2.1
From: Rolf Latham


Basic risk management I suppose ! Minimal cost too for the xtra weeks.

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From: Paul Zagoridis


I'd heard that you can't claim from two insurers.

I now insure properties as soon as I exchange. But if the vendor has insurance and a fire occurs I've always wondered what would happen.

The contract also says there are certain inclusions like windows and floor coverings. What if they're a pile of ash?

It's worth it for me to be covered.

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Reply: 5.1

Final Inspection

Buyers are allowed to inspect the property within the 7 days before settlement to ensure that it is in the same condition as it was when purchased. This inspection can be arranged with the vendor's agent or the vendor.

Copyright and Disclaimer

For further Information please contact:
NRE Customer Service Centre
Phone: 136 186 or (03) 9603 9151
Email: [email protected]
Land Victoria
Department of Natural Resources and Environment, Victoria, Australia
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Reply: 6
From: Mr S

My wife and I recently bought our first IP. Between exchange and settlement the builder failed to install the kitchen breakfast bar and damaged a wall.

We instructed our solicitor not to settle.

The builder responded by putting $5000 into our solicitors trust account guaranteeing that he would have the work completed within 3 weeks of settlement or we'd get the 5K but insisted we still settle on the original date.

We said that we wanted the $5000 guarantee but also wanted a 1K reduction in price.

We got the 5K security deposit and a 1K reduction.

At the 11th hour we called our solicitor to inform her that the carpet was dirty. The builder gave us another $100.00 for cleaning.

In the end we reduced the price by a further $1100.00 after the original reduction and held $5000 for a week until he completed all the work. We were happy with this.

In your situation I wouldnt settle unless a security deposit was held which covered the repairs and I would ask for a reduction as well. Your IP will need work while you are collecting no rent... doesnt make economic sense to me to settle without a gain in your favour. You are running a business and not a charity.

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Reply: 6.1
From: Ian Parham

G'day Ken & All
Just a thought on the actual damage.
My experience with fire scenarios and training suggests that new boards (patching up damaged area), carpet and paint won't get rid of the acrid odour...that stays for a very long time!
How bad was the damage Ken? To call the MFS is significant to my thinking.
Essentially I guess you really need to review this property acquisition in so far as...how much work, money and time is it ACTUALLY going to take to bring it back up to scratch?"
I am not saying walk away from purchasing the property, but perhaps you are now in a position to 'work over' the vendor.
Can you drive hard enough to negotiate a significant drop in price as compensation?
As the 'forumites' above have comprehensively mentioned re: insurance etc., can you escape your contract if necessary?
Cheers Ian
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Reply: 6.2
From: Ken .

Thanks everyone for your thoughts, this definitely looks like it has the potential to become messy, a few points. This is in NSW. I didn't even consider getting insurance at contract exchange, as I always understood that liability would transfer at same time as ownership, that being at settlement.
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Reply: 6.2.1
From: Asy .


here is my humble addition to your myriad of responses.

In Victoria, The Vendor is required to hold insurance on the property up until the purchaser is entitled to possession of the property (ie: settlement, or occupancy in the case of a wrap). This is covered under section 35 of our Sale of Land Act. (Although it is ALWAYS a good idea to cover it yourself as soon as you sign, just in case they contravene this.)

If the property is destroyed or damaged so as to be unfit for occupation before the purchaser becomes entitled to possession, the purchaser may rescind the contract within 14 days of becoming aware of the damage (section 34 SOLA).
You may not want to do this, but it can be useful as a 'topic for discussion'.

I would imagine your laws are similar. I guess the best suggestion is to take the matter to a solicitor, and also, possibly have a look at the relevant act in your state.

If it helps there is a website:
which has all the Acts and Regulations in Australia listed, and you can download them free.

Anyway, good luck, and let us know what happens!

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From: Sim' Hampel

On 6/21/01 10:23:00 PM, Asyral Seyah wrote:
>In Victoria... [comments deleted]

>I would imagine your laws are

Well... assumung that would probably be a big mistake.

There are other states where liability passes to the purchaser once the contract is signed.

>I guess the best
>suggestion is to take the
>matter to a solicitor, and
>also, possibly have a look at
>the relevant act in your

Yes... this is definately the thing to do.


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