07/01/2017, 11:34:AM
07/01/2017, 11:34:AM
Does risk of insurance pass to the purchaser on signing?
Every purchaser of property should ask whether the insurance risk passes to them when they sign the contract of sale. With the cost of insurance premiums increasing it is not uncommon to find that a property is not insured, or properly covered by the vendor, or the contract of sale attempts to pass the risk of the property to the purchaser upon signing.
Under general condition 24 of the standard contract of sale, the vendor maintains the risk of the property until completion of the contract. However, where the vendor passes that risk to the purchaser in the contract, the vendor is required to provide the details of their insurance in the section 32 statement in accordance with section 32B(a) of the Sale of Land Act 1962 (Vic), which says:
(a) if the contract for the sale of the land does not provide for the land to remain at the risk of the vendor until the purchaser becomes entitled to possession or receipt of rents or profits, particulars of any policy of insurance maintained by the vendor in respect of any damage to or destruction of the land [must be disclosed in the section 32 statement];
Section 35 of the Sale of Land Act 1962 section (1) permits the purchaser to be a receiving party under the vendors insurance policy in the event of a claim arising. The wording of the Act assumes that there is an appropriate insurance policy being enforce by the vendor.
The main issue for the purchaser is whether the insurance policy held by the vendor is sufficient for the proper cover of the property that has been purchased, and keeping in mind some vendor’s will not have, or attempt to have an insurance policy for proper cover of the property due to cost of the policy.
Under the Sale of Land Act 1962 (Vic) section 35 items (1) to (9) says:
(1) During the period between the making of a contract for the sale of land and the purchaser becoming entitled to possession or to the receipt of rents and profits pursuant to the terms of the contract, any policy of insurance maintained by the vendor in respect of any damage to or destruction of any part of the land agreed to be sold pursuant to the contract shall in respect of the said land, to the extent that the purchaser is not entitled to be indemnified under any other policy of insurance, enure for the benefit of the purchaser as well as for the vendor and the purchaser shall be entitled to be indemnified by the insurer under any such insurance policy in the same manner and to the extent as the vendor would have been if the land had not been subject to the contract.
(2) It shall not be a defence or answer to any claim by the purchaser against the insurer made under subsection (1) hereof that the vendor otherwise would not be entitled to be indemnified by the insurer because the vendor has suffered no loss or has suffered diminished loss by reason of the fact that the vendor is entitled to be paid the purchase price or the balance thereof by the purchaser.
(3) A policy of insurance shall not enure for the benefit of a purchaser under subsection (1) hereof if the insurer establishes that a prudent insurer would not have insured the purchaser against the risk covered by the policy.
(4) At any time prior to the happening of the risk insured against an insurer made liable to a purchaser under subsection (1) may terminate that liability by giving notice of such termination to the purchaser in not less than three clear business days.
(5) A notice under subsection (4) shall be in writing and shall be served upon the purchaser personally of in the case of a company by leaving it at the company’s registered office.
(6) The contract of insurance shall terminate at the expiration of the period specified in the notice.
(7) The service of a notice under subsection (4) shall not affect the liability of the insurer to the vendor under the policy of insurance.
(8) Where money becomes payable under a policy of insurance in respect to any damage to or destruction of part of the land agreed to be sold the money shall, on completion of the contract be held or receivable by the vendor on behalf of the purchaser and paid boy the vendor to the purchaser on completion of the sale or as soon as the money is received by the vendor (whichever is the later).
(9) Notwithstanding subsection (1) an insurer shall not be entitled to deny liability to the purchaser because of a fault on the part of the vendor by reason of which the vendor would not be entitled to make a claim under the policy.
A prudent purchaser who intends to sign a contract of sale should have that agreement reviewed by a lawyer before proceeding to sign, which is for the purpose of clarifying the level of risk that will pass from the vendor to the purchaser. In addition to the contract review, and upon the agreement being signed, the purchaser should be proactive by taking out insurance in their own name on the property. In the event that the purchaser does not take out insurance, or have proper insurance cover on the property, and the dwelling-house is destroyed to a state of being unfit for occupation, the purchaser may rescind the contract under section 34 of the Sale of Land Act. Sometimes what a party expects to get will not always be the case, so get that legal advice to protect your legal rights and interests.
The comments in the aforementioned do not constitute legal advice and are general in nature, and if legal advice is required please contact: John Melis at Legal AU Pty Ltd (03) 9999 7799 www.legalau.com
Legal AU Pty Ltd Lawyers are “Liability limited by a Scheme approved under Professional Standards Legislation.”
