Seling an earthgquake damaged house with EQC/Insurance Claims

Selling an earthquake damaged house with EQC and/or Insurance claims

Written by Richard Parkes - Partner (Property)

It is becoming increasingly apparent for vendors the importance of understanding the EQC/insurance claims history of a property prior to sale.

The key issue for vendors (and agents) is not to misrepresent the earthquake claim history of the property with the potential problem of a purchaser “coming back” and suing the vendor following sale due to incorrect representations.

When acting for a vendor, the person drafting the contract needs to be carefully considering who lodged the EQC/insurance claims arising from the earthquakes, what cash was paid out and what repair/rebuild work was completed and by who.

Once the facts have been determined then the EQC/insurance clauses should clearly reflect the history of the claims process for the property.

Common problems we see are when a contract says that the vendor lodged the EQC/insurance claims, when in fact it was a previous owner, or perhaps 2 or 3 owners ago.

Or where the incorrect EQC claim numbers and/or insurance claim numbers are stated.

A very concerning issue is where a contract might state that the vendor agrees to assign its rights under its insurance claim.  The problem here is that generally speaking it is not possible to assign an insurance claim and even if you can it may only be possible to assign limited rights.  This is likely to be a serious issue for a purchaser who might have been relying on the vendor’s representation that they will be entitled to fully benefit from the old insurance claim.

If there was a cash settlement, make it clear that the vendor will be retaining that cash or whether they will be happy to pay that money to the purchaser.  Likewise, if repair work was carried out, make sure that all necessary building consents were aquired and code compliance certificates issued.  Otherwise a purchaser could “come back” to the vendor and sue for damages for any losses in this regard.

If a vendor is selling an “as is, where is” house then it is important to state clearly the claim history, that the vendor will be retaining all insurance money and the vendor will not be completing any repairs and that the purchaser is making their offer based solely on their own judgement.  The purchaser may well want a clause stating that the insurer does not have the right to demolish the buildings which will be fine provided that checks are completed to ensure this is the case.

When selling an “as is, where is” house it is also important to consider the “risk and insurance” clause.  As it is unlikely that the house will be fully insured (if at all), and that the purchaser will be paying a discounted amount (due to the damaged building), then ideally it should be stated that risk in the property should pass to the purchaser on the signing of the agreement or at the very least once the contract becomes unconditional.  Therefore if the house gets damaged (by say fire or earthquake) prior to settlement then the purchaser will still have to pay up in full.

Another serious issue which is currently appearing these days is with the sale of earthquake damaged cross lease properties.  Probably a lot of cross-lease owners are unaware that if they try and sell their damaged townhouse they will remain liable to the other cross-lease owners to fully repair their townhouse, even after sale.  This issue is very complicated and requires careful thought to protect the vendor post-sale from any of the other neighbouring townhouses deciding to sue the vendor because the repair work was never completed at the time of damage.

Recent Interesting Issues

Written by Louise Maginness – Registered Legal Executive (Property)

Below are a few unusual matters/issues that have recently come up in our Property Team that we thought may be of interest to agents.

Purchase price error
On a recent rural agreement, an agent accidentally transposed the figures for the agreed purchase price.  This error was not picked up by either the vendor or the purchaser when signing.  The agent had not written out the purchase price in words.  The error only came to light when the deposit figure was calculated to be a slightly peculiar sum.  Luckily in this case the vendor and purchaser agreed that purchase price in the agreement was incorrect, however either party could have attempted to force the other party to stick to the amount noted in the signed agreement. In this case the aggrieved party’s only remedy would have been to seek relief under the Contract and Commercial Law Act 2017 against the attempt to capitalise on the contractual mistake.

We believe the lesson here is to write the purchase price out in words as well as figures.

Capacity issue
A vendor client was selling their property and we received a signed agreement for sale and purchase.  On the date that confirmation of the further terms was due, we received a call from the purchaser’s lawyer advising that she couldn’t get hold of her client.  Due to the purchaser’s lawyer being unable to obtain instructions, the agreement just rolled over at this stage.  A few days later, we received advice from the purchaser’s lawyer that her client had lost mental capacity since signing the agreement and was currently under the health system.  Even though the purchaser later attempted to advise their lawyer that they were keen to confirm the further terms and purchase the property, they no longer had capacity to give their lawyer instructions nor complete the settlement.

Our client decided to keep the agreement alive while they continued to market the property.
After about five weeks, our client decided to cancel the agreement and take the agreement off the market and rent the property out.

No Body Corporate insurance
We are acting for an estate on the sale of its unit title property which the deceased had owned for around 40 years via private sale.  Our client’s garage and the other unit title owner’s garages are attached to each other.  When completing the pre-contract disclosure information, it was discovered that the Body Corporate was not functioning and each owner held their own separate insurance, one is insured with State, and the other with Tower.  Under the Unit Titles Act if the two properties share building elements then there needs to be Body Corporate insurance in place. Units can only be separately insured if they contain only stand-alone buildings, and the body corporate has passed a special resolution allowing this.

We therefore were required to approach the owner of the neighbouring unit to see if they would be happy to obtain joint body corporate insurance with our client.  They are not keen to change insurers despite us having pointed out that should the neighbour ever sell their unit, they will have the same issues as our client.

As yet we haven’t managed to sort out a solution to this issue which suits our client, the purchaser and the neighbouring owner.  To add further problems to this matter, the property owned by the deceased is not in the best state of repair and our client’s executor is worried the insurer will refuse to insure the property should we change policies.

Our client can force their neighbour to abide by the Unit Titles legislation and put joint body corporate insurance in place. However this process will add time and cost, and cause perhaps irreparable angst between the parties.  It also remains to be seen whether we can put insurance in place before the purchaser runs out of patience and cancels the contract.

The lesson here is that it is not uncommon for smaller body corporate to be operated unofficially in a way which is not consistent with the Unit Titles Act. The above insurance scenario is one example, but we have also encountered numerous situations where the body corporate has not elected the chairperson necessary to sign the compulsory disclosure statements. We’ve also seen other body corporates which are not dealing with shared maintenance issues correctly.

If this is the case with a unit title property which you are marketing then we suggest that you allow your vendor client enough time to remedy these issues before an agreement is signed or becomes unconditional.

Mike Parker

+64 3 339 5645

Partner - Property

Phone: +64 3 339 5645

Mobile: +64 21 226 2630


Richard Parkes

Partner - Property

Phone: +64 3 339 5610


Louise Maginness

Solicitor Registered Legal Executive - Property

Phone: +64 3 339 5643


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