Flooded property under contract – what are your rights in New South Wales?

Further to our recent blog on the Queensland floods, many New South Wales residents are also having to deal with significant damage caused by the recent floods and home buyers and sellers will be wondering how it impacts their situation.

Property laws are different in each state and territory and so the position in New South Wales is not the same as in Queensland.

NSW laws and the standard residential contract provides that risk in the property (and by inference any included chattels) passes to the buyer at the completion of the sale (i.e. settlement) or on any earlier possession of the property by the buyer. Risk includes the risk of flooding.

Insurance

As the property remains at the seller’s risk they should retain insurance until settlement.

Buyers should consider taking out insurance as soon as possible after contract exchange as they will usually need to show their lender they have a policy in place before settlement.

If the seller has agreed to give the buyer possession before settlement then they should ensure the buyer has appropriate insurance in place.

Despite this many properties damaged by the flooding will not be covered for damages caused by flooding as it has been the practice of most insurance companies not to offer flood insurance for dwellings in known flood areas.

Cancellation and price reduction

Buyers who have the benefit of a cooling off period, usually 5 business days from exchange unless sold at auction or waived by the buyer, may be able to rescind (cancel) a contract for any reason with only a small cooling off penalty of 0.25% of the price.

If the property has been substantially damaged by flooding then a buyer can cancel the contract within 28 days and have their deposit returned. Property is considered substantially damaged if it is materially different to what the buyer contracted to buy.

If the property is damaged but not substantially, and not rectified by the seller before settlement, then the buyer is entitled to a ‘just and equitable’ reduction in the purchase price. A buyer may also be entitled to a price reduction where there is substantial damage but choose to complete the contract (unless it would be ‘unjust and inequitable’ for a seller to be forced to complete at such a price reduction).

Finance

Another matter of concern for buyers relying on finance to settle is whether their lender will require a fresh valuation for a flood affected property and if the new valuation doesn't stack up whether the lender will withdraw their offer of finance putting the buyer in a position where they cannot settle.

Micaela Wilcock

Legal Advisor

Micaela is a legal advisor at Lawlab, where she loves going above and beyond as well as connecting with her customers. She holds a law degree as well as a degree in Environmental Science and moved to Brisbane in 2021.