Following recent heavy rainfall across Queensland, many buyers have raised concerns about who bears the risk if a property is damaged between signing the contract and final settlement. This question is not only common—it is critically important in understanding your legal rights and responsibilities during a property transaction.
What Does the Standard Contract Say?
In Queensland, most residential property transactions use the standard REIQ Contract of Sale. Clause 8.1 of this contract states:
Unless otherwise agreed, the risk of the property passes to the buyer at 5:00pm on the first business day after the Contract Date.
This means that even before settlement and title transfer, the buyer bears the risk of damage to the property. If the property suffers damage due to flooding, fire, theft, or any other event after this point, the buyer may be legally responsible for repairs—even though they haven’t taken possession yet.
Why Buyers Should Pay Close Attention
This clause has significant implications for buyers—especially in light of Queensland’s increasingly unpredictable weather patterns. Common real-life scenarios include:
- Roof or structural damage from storms occurring before settlement;
- Theft or vandalism while the property is vacant;
- Flooding of low-lying properties during the contract period.
If buyers haven’t taken out insurance, or weren’t properly advised about the contract’s risk transfer clause, they could face unexpected financial liability.
Can the Risk Transfer Date Be Negotiated?
Yes.
Although the REIQ contract sets a default risk transfer date, parties are free to negotiate alternative arrangements, particularly through special conditions. These may include:
- Specifying that risk transfers only on the date of settlement;
- Requiring the seller to maintain insurance until settlement;
- Holding the seller responsible for any damage occurring before completion.
These terms are commonly negotiated in commercial or off-the-plan transactions, and can also be used in residential contracts to better protect the buyer.
The Role of Insurance and Finance Conditions
Where the buyer is relying on a mortgage or bank loan, most lenders will require the buyer to take out building insurance before settlement. Typical lender requirements include:
- Insurance must cover full replacement or reinstatement value of the property;
- The lender must be listed as an interested party on the policy;
- The policy must be effective from the risk transfer date or earlier.
Therefore, from both a legal and financing standpoint, taking out insurance promptly after contract signing is strongly recommended.
Practical Advice for Buyers
To minimise risk and protect your investment, we recommend:
- Review the risk transfer clause before signing—and seek legal advice if unsure;
- Purchase insurance immediately after signing, regardless of loan approval status;
- Confirm with your insurer that the policy includes natural disaster cover (e.g. flood, storm, fire);
- Consider negotiating special conditions if the property is in a high-risk area (e.g. flood-prone zones).
How Ensure Legal Can Help
Ensure Legal, based in Brisbane, specialises in Queensland property law. We can assist with:
- Reviewing and negotiating risk clauses in REIQ and non-standard contracts;
- Drafting tailored special conditions to protect buyers;
- Coordinating with insurers and lenders to ensure compliance with contract and finance requirements;
- Advising on legal options in case of property damage before settlement.
