Help! Just exchanged then house burnt down!

[tigerGT]

Hi All,

Just bought IP 2 weeks ago. I exchanged early last week and am due to settle in Janruary. I just recieved a call from the Agent advising that the house has burnt down. Two of the rooms are totaled and she beleives its not quite salvagable. There is graffiti everywhere inside also.
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I will be talking to my solicotor on Monday but can anyone tell me what will happen? Will I lose my deposit? Can the seller pull out? I have insurance and so does the seller on the property but the property is not yet legally mine.
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Any advice, tips would be highly apprecaited.

thankssss

anxious George

 

[buzzlightyear]

Given the property is not in the condition it was when you signed the contract, the vendor cannot deliver the property to you as per your contract. It should be able to be rescinded. Obviously your deposit will be returned in this scenario.

With regards to the insurance issue, this is a grey one, because of the impending sale, but IMHO it should be put through on the vendor's insurance. As you say, you aren't the legal owner.

Let us know how you go because this scenario has been discussed before on this forum, but only theoretically.

 

[Perp]

I understand differently to Buzz; I believe you do still have to settle unless you specifically have a clause stating that the property has to be in a condition satisfactory to you at settlement. Even in that case, I wouldn't be surprised if you still have to settle, on the basis that the insurance will restore the property to the condition in which it was when you agreed to purchase.

The insurance (not sure whether yours or the vendors) should restore the property to its prior condition, anyway. Even though you don't yet own the property, you have what's called an "insurable interest" in the property. I don't know, when there are two lots of cover, whose the claim is processed under... interesting one.

You may have the inconvenience of having a vacant property whilst the repairs are carried out, but I don't believe that's grounds to rescind the contract. Were you taking it over with a tenant in place? If so, your landlord's insurance may cover you for the loss of rent during repairs, and cost of alternative accommodation for tenants.

 

[Carl]

So is this the reason why we should take out house insurance once contracts are exchanged? I didnt get insurance for my property because of strata covering house insurance for whole block, but is interesting for in the future...


Good luck whichever way it goes!!!

 

[Y33]

George,

Not sure of the legalities, but if the insurance will cover the cost of repairs etc are you able to enhance the property to make it better than before. This could be a blessing in disguise with some imaginative thinking. If paint in other rooms or fittings etc were a bit run down you may be able to claim for smoke damage thus getting new paint work throughout etc.

 

[boomtown]

Or you may end up getting a new house for the price of an old one

 

[The Y-man]

So is this the reason why we should take out house insurance once contracts are exchanged?

Yes, absolutely. Although in theory the vendor's insurance should cover, there may be issues (such as they are not insured!) so you should take out insurance as soon as contracts are exchanged.

Cheers,

The Y-man

 

[Perp]

So is this the reason why we should take out house insurance once contracts are exchanged?

You bet! Even if neither party had insurance, or coverage were denied for some reason, you may still be compelled to settle. People have been forced to buy land with a house that was incinerated a few days prior to settlement.

There are two separate issues which can come into play:

1) The timing of insurance risk passing from vendor to purchaser - in NSW and VIC, I believe that the standard arrangement is at settlement (sensible!), but in QLD it is at 5pm the day after contract signature. So if you sign to buy, and the vendor counter-signs, on Monday, the property is at your risk from 5pm Tuesday. If the building is incinerated on Wednesday, you are liable. My understanding is even if you have a conditional contract and didn't, for example, obtain finance and thus didn't proceed to settlement, you would still be liable for making good; you'd have to rebuild the house for the vendor to sell to somebody else. So you'd better have insurance, to cover your liability whilst you had it under contract.

2) Whether events between exchange and settlement give you a legitimate reason to cancel the contract.

Generally, a building being partially or fully destroyed by fire (or flood etc) would not automatically give you a right to withdraw from the contract. Whether rectification would have to be covered under your insurance (as in QLD) or theirs (as in NSW/VIC) is a separate issue. You may have to settle, and their insurance will cover rectification works, but you can't not settle because of the damage having been done and the rectification works being required.

I'm talking about "standard" conditions here; any of these circumstances can be modified via special conditions. You can put in a special condition that insurance risk is to remain with vendor until settlement, and that the contract becomes void if the property is significantly damaged prior to settlement, etc.

 

[tigerGT]

I am so glad I took out insurance one day after I exchanged contracts. Let this be a warning to others. Make sure that you get the building insurance from the day you sign the contracts.
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I dont know who's problem it is yet but I do feel a whole lot better because I have taken out the insurance.
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The way I see it I have two options however I will obviously double check with solicotor tomorrow. Option 1: Have my deposit returned and allowed to rescind. Option 2: Am obliged to buy however vendors or my insurance must repair. As someone else said, this could be a blessing in disguise indeed.
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I will see what happens tomorrow and let you all know. thanks for your responses.

 

[Carl]

Interesting. If insurance companies pay up, i wonder how they will try to spend the minimum money to get place rebuilt. Would they work out a value and pay you that or do they actually need invoices for the place being rebuilt?

I remember someone recently saying that they wished their whole property had burnt down (not just the kitchen as happened), as they were planning on knocking the house down for units anyway. In this case would the insurance company just pay them an amount?

Please let us know how things go!! Hopefully well for you...

 

[Shananigans]

I remember someone recently saying that they wished their whole property had burnt down (not just the kitchen as happened), as they were planning on knocking the house down for units anyway. In this case would the insurance company just pay them an amount?

Please let us know how things go!! Hopefully well for you...

It depends on the company. I work for an insurance company and with us if the home burns down and you want to take the money instead of rebuilding the home you're able to do so.

 

[Perp]

You're absolutely right, George, it was wise to take out insurance, and thanks for sharing the story as a salutary lesson to others.

 

[tigerGT]

Update:
Even though I did take out insurance from the day I actually exchange contracts it seems like it did not matter. When I rang to make a claim the initial claim was accepted but then I received a call from the legal department advising me that because I am not the owner yet(settlement) then my insurance would not cover it.
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The vendor does have insurance luckily. I have requested that I do not want to rescind. The valuation was done on Friday and I have not heard back. However I hear that the insurance company will most likely fix repair the damage which should be good. I was worried about vendor taking cash settlement and leaving me with a poorly repaired property. If this was to happen I would definitly rescind.
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Anyway I assume that this will take at least 3-4 months so I will negotiate an extended settlement untill the property is fully restored. This is what I am aiming for but who knows with these things.

For pics of the damage click on below link:

http://picasaweb.google.com/gachram/HouseFire#

 

[MissMuffitt]

what are you insured for??

Update:
Even though I did take out insurance from the day I actually exchange contracts it seems like it did not matter. When I rang to make a claim the initial claim was accepted but then I received a call from the legal department advising me that because I am not the owner yet(settlement) then my insurance would not cover it.

For pics of the damage click on below link:

http://picasaweb.google.com/gachram/HouseFire#

I always thought that this sort of situation was the reason we are all told to take out insurance straight away.
What would have happened if the owner had let his insurance laps after signing the contract with you??

 

[tess85]

no-one told me we had to take out insurance straight away until now! eek...

as far as I knew, we were told to take it out starting from settlement date...

 

[Raddles]

Hi there Tiger
did look at your photos and noticed you reckon it was vandals
gee I hate that
Just this morning our tenant in Canberra advised that they and 8 other households have been the subject of bricks through their windows - here we go again - another insurance claim!
thanks

 

[geoffw]

No, not vandals.

Obviously an electrical accident. The burnt out globe just happened to make shapes on the wall just like graffiti

 

[tiger]

What suburb?

 

[Raddles]

Hi there Tiger
are you are after the Duffy incident in the ACT?
thanks

 

[tiger]

oops thought this was a new thread, no was wondering what suburb the original poster's burnt down house was in