The risk question. There is usually a gap of some weeks between signing a contract and settlement. If the property is damaged during that gap, by fire, storm, flood or vandalism, someone has to bear that loss. In property law this is described as who carries the "risk". In practical terms, it means who is responsible if the property is damaged before settlement. When risk passes to the buyer isn't the same in every state.
When risk passes, at a high level
| State | When risk generally passes to the buyer |
|---|---|
| QLD | The buyer can become responsible for the property's risk shortly after the contract is entered into. |
| NSW | The seller generally remains responsible until settlement, unless the buyer takes possession earlier. |
| VIC | The seller generally remains responsible until settlement, subject to the terms of the contract and any earlier possession. |
These are high-level summaries only. What happens if the property is damaged, and what options the buyer has, depends on the state, the contract and the circumstances. See your state's explainer for the detail.
Why you can't rely on the seller's insurance. Even where the seller remains responsible for risk until settlement, their insurance is not your cover. The seller may not hold appropriate insurance, their policy may not cover the particular event, or its terms may affect whether a claim can be made, while your own obligations under the contract may continue.
What insurance to arrange, and when. Check your insurance requirements before you sign, and arrange cover early enough that it is in place before the property becomes your responsibility for risk. If you are borrowing, your lender may also require evidence of building insurance before settlement, so ask what they need and by when. For a standalone house, building and contents insurance are the usual starting points, and public liability cover may also be relevant.
Strata and community-title properties. The building may be insured through the owners corporation or body corporate, but what that policy covers varies between schemes. You may still need contents and other cover for your lot. Check what the scheme's policy covers before arranging your own, and don't assume the arrangement from the building type alone.
Condition and inspections. Understanding the property's physical condition is a separate question from who carries the risk of later damage. Arranging appropriate inspections before you commit, where relevant, helps you understand potential physical problems with the property. Insurance is financial protection against specified insured events. One doesn't replace the other.
General information only, not legal or insurance advice. Confirm your position with your conveyancer, lender and insurer.
