Buying or selling a property usually involves a period of several weeks between signing the Contract of Sale and settlement.
During this time, unexpected things can happen.
A property may be affected by a storm, flood, fire, water damage or another unexpected event before the buyer takes possession.
So, what happens if the property is damaged after the contract is signed but before settlement?
The answer depends on the extent of the damage, the condition of the property and the terms of the Contract of Sale.
In serious cases, a buyer may have a right to end the contract. If the property is still liveable, the seller may be responsible for arranging and paying for repairs.
This article explains what buyers and sellers should know about property damage before settlement in Victoria.
What Happens If a Property Is Damaged After Signing the Contract?
Once a property contract has been signed, there may still be a period before settlement.
During this time, the property needs to be maintained and handed over in accordance with the Contract of Sale.
Consumer Affairs Victoria states that the seller is required to hand over the property in the same condition as when it was sold, subject to fair wear and tear. Buyers are also entitled to a pre-settlement inspection during the week before settlement.
This means that if something significant happens to the property after the contract is signed, it should not simply be ignored.
The buyer and seller should contact their conveyancers or legal practitioners as soon as possible so the situation can be properly assessed.
What Types of Damage Can Occur Before Settlement?
Property damage before settlement can happen for many reasons.
For example:
- A storm damages the roof.
- A tree falls onto the house.
- A burst pipe causes significant water damage.
- Flooding affects the property.
- A fire damages part or all of the house.
- A major electrical fault causes damage.
- The property becomes unsafe or unfit for occupation.
- Fixtures or items included in the sale are damaged or destroyed.
The seriousness of the damage matters.
Minor damage that can be repaired may be treated very differently from damage that makes the property unfit for occupation.
What If the Property Is Still Liveable?
If the property is damaged but remains liveable, the seller may be responsible for organising and paying for the necessary repairs.
For example, suppose a storm damages part of the roof but the house remains suitable for occupation.
The parties may need to work with the insurer and relevant professionals to determine:
- what has been damaged
- what repairs are required
- how much the repairs are likely to cost
- whether the repairs can be completed before settlement
- whether settlement needs to be adjusted or delayed
The seller should contact their insurer promptly and obtain appropriate advice about the repairs.
The buyer should also inform their conveyancer or legal practitioner rather than trying to resolve the contractual position themselves.
What If the Property Is Destroyed or Becomes Unfit for Occupation?
This is a much more serious situation.
If the property has been destroyed, or the damage is so severe that the house is unfit for human occupation, the buyer may have a right to end the Contract of Sale before taking possession.
Consumer Affairs Victoria states that, in these circumstances, the buyer has 14 days from the date they become aware of the damage or destruction to end the contract.
If the buyer ends the contract under these circumstances, money paid by the buyer must be refunded.
For example:
A buyer signs a contract to purchase a house with settlement scheduled in six weeks. Two weeks before settlement, a major fire severely damages the house and makes it unfit for occupation.
This is very different from a minor repair issue.
The buyer may have a right to end the contract, but should obtain advice promptly and ensure any notice required under the contract or applicable law is given correctly and within the relevant timeframe.
Does the Buyer Automatically Have to Cancel the Contract?
No.
Not every instance of damage means that the buyer must cancel the purchase.
The consequences depend on the circumstances.
For example:
Minor damage:
The property may be repaired and the transaction may continue.
Significant but repairable damage:
The parties may need to work with insurers and their conveyancers or legal practitioners to determine how repairs and settlement should be handled.
Property destroyed or unfit for human occupation:
The buyer may have a right to end the contract in accordance with the applicable requirements.
The buyer should not assume that they can simply refuse to settle because something has been damaged.
The contractual and legal position should be checked first.
What Happens to the Seller’s Insurance?
Insurance can become particularly important when a property is damaged before settlement.
Consumer Affairs Victoria advises buyers that, although the seller’s insurance may cover the property up to settlement, a buyer’s lender will generally recommend that the buyer arrange building insurance from the date the seller signs the contract. This is intended to protect the lender’s interest as well as the buyer’s.
Consumer Affairs Victoria also states that the seller’s insurance policy will benefit the buyer from the date the buyer signs the contract until the buyer takes possession, unless the buyer has other cover.
Insurance arrangements can be complicated, however, so buyers and sellers should contact their insurer promptly after significant damage occurs.
What Should the Seller Do If the Property Is Damaged?
If you are a seller and your property is damaged after signing the contract, do not wait until settlement to mention it.
You should:
1. Notify your conveyancer or legal practitioner
Tell them what happened and provide any relevant information.
2. Contact your insurer
Make a claim where appropriate and follow the insurer’s instructions.
3. Take reasonable steps to prevent further damage
For example, if a storm has damaged the roof, you may need to arrange temporary measures to prevent further water damage.
4. Obtain repair information
Depending on the circumstances, you may need quotes, reports or other information about the extent of the damage.
5. Keep the buyer informed through the appropriate representatives
The seller should not assume that the problem can simply be dealt with after settlement.
The conveyancers or legal practitioners can communicate with each other about the contractual position and next steps.
What Should the Buyer Do If the Property Is Damaged?
If you discover damage before settlement, contact your conveyancer or legal practitioner promptly.
You should:
- document the damage with photographs where appropriate
- notify your conveyancer or legal practitioner
- ask whether the damage affects your contractual rights
- check what your insurance arrangements cover
- obtain information about proposed repairs
- avoid agreeing to changes to the contract without appropriate advice
If the property is seriously damaged or destroyed, timing can be particularly important because specific rights may be subject to time limits.
What About the Pre-Settlement Inspection?
The pre-settlement inspection is particularly important when buying a property. It gives the buyer an opportunity to check the property’s condition before settlement and identify any significant damage or other issues.
In Victoria, a buyer is entitled to inspect the property at a reasonable time during the week before settlement. The purpose includes checking that the property is in the required condition and that items included in the contract are still present and in the appropriate condition.
For example, a buyer might discover during the inspection that:
- a window has been broken
- a ceiling has water damage
- an appliance included in the sale is no longer working
- a fixture has been removed
- part of the property has been damaged since the contract was signed
If you notice a problem, raise it with your conveyancer or legal practitioner as soon as possible.
For more information, see our guide: What Should I Check at the Final Inspection Before Settlement in Victoria?
Do not assume that you can simply refuse to settle without first understanding your contractual position.
What If Damage Is Discovered on Settlement Day?
If significant damage is discovered shortly before settlement, the parties may need to stop and obtain advice before proceeding.
Depending on the circumstances, the options may include:
- arranging repairs
- dealing with the insurer
- negotiating an appropriate arrangement between the parties
- adjusting the settlement arrangements
- delaying settlement where appropriate
- considering whether the buyer has a right to end the contract
The appropriate solution depends on the type and extent of damage and the terms of the Contract of Sale.
There is no single solution that applies to every transaction.
What If the Property Is Damaged After Settlement?
Once settlement has occurred and the buyer has taken possession, the position is generally different.
Settlement is when the buyer pays the balance of the purchase price, receives the title and takes possession unless otherwise arranged.
This is one reason why it is important to understand exactly when the damage occurred and whether settlement and possession have already taken place.
If damage occurs after settlement, the buyer should generally deal with the matter through their own insurance and seek appropriate advice depending on the circumstances.
Common Examples of Property Damage Before Settlement
Example 1: Storm Damage to the Roof
A storm damages several roof tiles two weeks before settlement.
The property remains liveable.
The seller contacts their insurer and arranges the necessary repairs. The parties communicate through their conveyancers about the repairs and settlement.
Example 2: Burst Pipe
A pipe bursts and causes significant water damage to the kitchen and flooring.
The property is still capable of being occupied, but repairs are required.
The seller should notify the insurer and obtain appropriate repair information. The buyer should notify their conveyancer so the contractual position can be considered.
Example 3: Major Fire
A fire causes extensive damage and the house becomes unfit for human occupation.
This is potentially much more serious. The buyer may have a right to end the contract, subject to the applicable requirements, including the relevant 14-day period from becoming aware of the damage.
How Can Buyers Reduce the Risk of Problems?
Buyers should consider:
- arranging appropriate building insurance
- understanding their insurance cover from the time the contract is signed
- attending the pre-settlement inspection
- checking the property carefully before settlement
- reporting any significant damage immediately
- making sure their conveyancer knows about any concerns
Consumer Affairs Victoria recommends that buyers consider building and contents insurance from the date the seller signs the contract, particularly because the buyer’s lender may require cover to protect its interest.
How Can Sellers Reduce the Risk of Problems?
Sellers should:
- maintain the property between contract and settlement
- promptly notify their insurer of damage
- arrange necessary repairs
- keep records of repair work
- communicate with their conveyancer or legal practitioner
- avoid making assumptions about who is responsible for a particular loss
Most importantly, if something significant happens to the property after the contract is signed, tell your conveyancer promptly.
Frequently Asked Questions
What happens if my house is damaged after signing the contract but before settlement?
It depends on the nature and extent of the damage. If the property remains liveable, the seller may be responsible for organising and paying for repairs. If the property is destroyed or becomes unfit for human occupation, the buyer may have a right to end the contract, subject to the applicable requirements.
Can a buyer cancel a property contract if the house is damaged before settlement?
A buyer may have a right to end the contract if the property has been destroyed or damaged so severely that it is unfit for human occupation. Consumer Affairs Victoria states that the buyer must act in writing within 14 days of becoming aware of the damage or destruction.
Who pays for repairs if a property is damaged before settlement?
If the property remains liveable, Consumer Affairs Victoria states that the seller is responsible for organising and paying for repairs. The insurance arrangements should also be considered.
Should I still attend the pre-settlement inspection?
Yes. A buyer is entitled to inspect the property during the week before settlement and should check its condition and that included items remain in place and in the required condition.
What if the damage is only minor?
Minor damage does not necessarily give the buyer a right to cancel the contract. The appropriate response depends on the circumstances and the terms of the contract. Raise the issue with your conveyancer or legal practitioner.
What if the seller says the damage is covered by insurance?
Insurance may help cover the loss, but the existence of insurance does not by itself answer all contractual questions. The parties should still obtain advice about the condition of the property, repairs and settlement.
Final Thoughts
Property damage between signing the Contract of Sale and settlement can be stressful for both buyers and sellers.
The most important thing is not to ignore the problem or assume that the contract automatically continues in exactly the same way.
If a property is damaged:
Buyers: document the damage and contact your conveyancer or legal practitioner promptly.
Sellers: contact your insurer, take reasonable steps to protect the property and notify your conveyancer or legal practitioner.
If the property is destroyed or becomes unfit for human occupation, specific rights may apply, including a potential right for the buyer to end the contract within the applicable timeframe.
Every transaction is different, so if significant damage occurs before settlement, obtain advice about your particular circumstances before taking action.
Need Help With a Victorian Property Contract or Settlement?
At Prox Conveyancing, we assist buyers and sellers with Victorian property transactions from contract through to settlement.
If you have concerns about a property contract, settlement or an unexpected issue before settlement, contact Prox Conveyancing to discuss your situation.
About the Author
Meet Sally
Sally Kwok is a Licensed Conveyancer and the Director of Prox Conveyancing. With more than 16 years of experience in the conveyancing industry, she is committed to helping buyers and sellers navigate Victorian property transactions with confidence. Sally is passionate about providing clear communication, practical guidance and personalised service throughout every stage of the conveyancing process.
👉 Learn more about Sally on our About page.
About Prox Conveyancing
Prox Conveyancing is a Victorian conveyancing practice providing professional conveyancing services for residential property transactions across Victoria. We assist buyers, sellers, investors and families with a wide range of conveyancing matters, delivering personalised service, transparent communication and professional support from contract through to settlement.
👉 Learn more about Prox Conveyancing on our About page.
This article provides general information only and is not legal advice. Every property transaction is unique, and the information above may not apply to your particular circumstances. If you require advice about your specific situation, please contact a qualified legal professional or licensed conveyancer.