At the moment, New South Wales is currently suffering some of its worst floods in years, with significant property damage being reported throughout the State.
People who have just bought or sold properties are anxiously monitoring developments.
Unlike in Queensland, where the risk passes to purchasers on the exchanging of contracts, the risk remains with the vendor until settlement in New South Wales.
Coupled with that, there are some significant statutory protections for purchasers in New South Wales.
Section 66L of the Conveyancing Act 1919 Act (the ‘Act’) provides that:
“Where land is substantially damaged after the making of a contract for the sale of the land and before the risk in respect of the damage passes to the purchaser, the purchaser may rescind the contract by notice in writing served on the vendor before the completion of the sale and--
(a) within 28 days after the purchaser first became aware of the damage, or
(b) within such longer period as may be agreed to by the vendor and purchaser.”
Importantly, this right is statutory—it applies regardless of whether the contract contains a clause that says otherwise.
However, the purchaser must make a decision one way or another within 28 days of becoming aware of the damage, otherwise the right to rescind expires.
Given this, it might actually be in the vendor’s best interest to notify the purchaser of any substantial damage as soon as possible.
Generally speaking, the Courts regard a property as being ‘substantially damaged’ if it is significant enough that the it can no longer reasonably be used for its intended purpose (e.g. as a dwelling).
As an alternative to rescission, section 66M of the Act states that:
“Where land is damaged after the making of a contract for the sale of the land and before the risk in respect of the damage passes to the purchaser, the purchase price shall be reduced on completion of the sale by such amount as is just and equitable in the circumstances.”
Note that the right to compensation under section 66M exists even the property is not substantially damaged – it just has to be damaged.
What is a “just and equitable” abatement in the purchase price might be difficult to determine before settlement so it is common practice for settlement to take place with a rough sum held back by the purchaser, pending the proper quantification of the damage.
This is a general statement of the law only and not legal advice. If you have questions about a specific case of yours, please contact our office on 02 8315 3118 and speak to one of our legal professionals.
