Who's liable if the property is damaged before settlement — and when to insure

There is a period between signing a contract and settlement when the property is still in the seller's possession, but responsibility for damage to it can depend on the state, the terms of the contract, and whether the buyer has taken possession early. Most purchases pass through that window without incident, and it is worth understanding before you sign rather than after.

The practical implication is straightforward. Before you commit, understand the property's condition and the risks attached to it. Once you sign, know when responsibility for risk passes to you, and arrange appropriate insurance before you need it.

What this guide covers

This guide answers four questions and then points you to the state-specific detail:

• What should I check about the property's condition before I commit?
• Who is responsible if the property is damaged before settlement?
• When does risk pass from the seller to the buyer?
• What insurance should I arrange, and when?

The risk and insurance overview explains the underlying concept, and the state explainers below cover how it works in Queensland, New South Wales and Victoria.

Condition, risk and insurance are three different things

These three terms get used interchangeably, and they are not the same thing.

• Property condition is what you are buying: defects, existing damage, inclusions, alterations, and building and pest issues to investigate before you commit.
• Property risk is who bears the risk of damage to the property after the contract is entered into and before settlement.
• Insurance is making sure you have appropriate financial protection for the period when that risk sits with you.

Checking the condition of a property does not protect you against damage that happens later, and insurance does not resolve a problem the property already had. All three are worth thinking about separately.

What to check about the property's condition before you commit

One of the key ways to understand the property's physical condition is to arrange appropriate inspections before you commit, where relevant. What is appropriate depends on the property, the state and the terms of your contract. Our guide to building and pest inspections covers what an inspection looks at and how it fits into the contract process.

It is worth being clear about what an inspection does. An inspection helps you understand potential physical problems with the property. Insurance is financial protection against specified insured events. One does not replace the other.

Who is responsible if the property is damaged before settlement

Responsibility for damage between contract and settlement depends on the state, the contract and the circumstances. At a high level:

• Queensland: 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.
• Victoria: the seller generally remains responsible until settlement, subject to the terms of the contract and any earlier possession.

These are high-level summaries only. The precise position depends on the state, contract and circumstances. See the state-specific guide for the rules that apply to your purchase.

What insurance to arrange, and when

Check your insurance requirements before you sign, and arrange appropriate cover early enough that you are insured before the property becomes your responsibility for risk.

If you are borrowing, your lender may also require evidence of building insurance before settlement, so it is worth asking what they need and by when.

It is also worth remembering that having a policy is not the same as being covered for every relevant risk. What a policy covers, and what it excludes, matters as much as having one in place.

Don't assume the seller's insurance will protect you

Even where the seller remains responsible for risk until settlement, their insurance is not your cover. There are several reasons for that:

• The seller may not have appropriate cover in place.
• Their policy may not cover the particular event.
• Policy terms may affect whether a claim can be made.
• Your contractual obligations as the buyer may continue even where an insurance claim becomes complicated.

The lesson is to understand your own position rather than relying on someone else's policy.

What insurance suits your type of property?

Standalone house

Building insurance generally covers the building and its fixtures. Contents insurance covers your belongings. Public liability cover may also be relevant. If you have a mortgage, your lender may have its own insurance requirements.

Strata or body corporate property

The building may be insured through the owners corporation or body corporate. Your own needs can still include contents and other cover, depending on the property and the scheme. Check what the strata or body corporate policy covers before arranging your own. Our strata and body corporate guide explains how these schemes work.

Townhouses and other shared developments

Don't assume the insurance arrangement from the building type alone. Check whether the property forms part of a strata, community or other scheme, and what the relevant policy covers.

What should you check when arranging home insurance?

Policies differ, so it is worth reading the detail rather than comparing on price alone. Questions worth asking include:

• What does the policy define as the building?
• What events are covered?
• What exclusions apply?
• What excesses apply, and to which types of claim?
• Are flood, storm and bushfire risks covered?
• Is the sum insured enough to rebuild?
• Are there property-specific risks that need particular attention?

The right answers depend on the property and your circumstances. An insurer or insurance broker is the right person to work through them with.

Property condition isn't the only risk to investigate

Condition and insurance sit alongside a broader set of checks worth making before you commit:

• Flood and bushfire exposure
• Planning or zoning restrictions
• Easements
• Unapproved works
• Strata or body corporate issues
• Contract inclusions and exclusions
• Building and pest findings
• Insurance availability and exclusions

Our guides to extra checks before you buy and common buying pitfalls cover more of these.

Common questions

What happens if a property is damaged before settlement?

It depends on who is responsible for the property's risk at that moment, which varies by state and by contract. Where the seller is still responsible, the buyer may have rights to a price adjustment or, for serious damage, to end the contract. Where the buyer is already responsible, the buyer may still have to complete the purchase. Check the risk and insurance overview and your state's guide.

Who is responsible for a property before settlement?

The property is usually still in the seller's possession, but contractual responsibility for risk is a separate question. In Queensland the buyer can become responsible shortly after the contract is entered into. In NSW and Victoria the seller generally remains responsible until settlement, subject to the contract and to any earlier possession.

When does risk pass from seller to buyer?

That depends on the state and the contract. It can be at settlement, at an earlier point set by the contract or by state law, or when the buyer takes possession. Your conveyancer can confirm the position for your purchase.

When should I arrange home insurance when buying a house?

Check your insurance requirements before you sign, and arrange cover early enough that you are insured before the property becomes your responsibility for risk. Leaving it until settlement day can be too late, depending on the state and contract.

Do I need building insurance before settlement?

Often, yes. If you are borrowing, your lender may require evidence of building insurance before settlement. Separately, if risk has already passed to you, being uninsured leaves you exposed. Confirm both with your lender and your conveyancer.

Does strata include building insurance?

In many schemes the building is insured through the owners corporation or body corporate, but the detail varies. You may still need contents and other cover. Check what the scheme's policy actually covers before arranging your own.

Does home insurance cover flood and bushfire?

Not automatically. Flood, storm and bushfire are treated differently by different policies, and some are excluded or priced separately. Check the definitions, exclusions and excesses in the policy, and check what the specific property is exposed to.

Does a building and pest inspection replace insurance?

No. An inspection helps you understand potential physical problems with the property before you commit. Insurance is financial protection against specified insured events. You generally want both.

Can I rely on the seller's insurance before settlement?

It is not something to rely on. The seller may not hold appropriate cover, their policy may not cover the event, and policy terms may affect whether a claim can be made, while your own contractual obligations may continue. Arrange your own cover instead.

Buying a property isn't just about checking what it looks like today. You also need to understand the risks attached to the property, when those risks become yours, and what protection you need once you commit. Good conveyancing helps you understand those issues before they become surprises.