Flooded homes under contract – seller’s race to fix may fail to halt fleeing buyers
The legal position in respect of homes under contract that can’t be repaired by the agreed settlement date is clear: a buyer may terminate if the property is “substantially unfit for occupation”.
But can a buyer terminate even if the seller is likely to complete repairs to flood damage before the agreed completion date?
There appear to be no decided cases on this point that relate to floods.
Some sellers – including Mirvac at Tennyson Reach on the Brisbane River – are now furiously reinstating their flood affected properties presumably, in part, to prevent contract terminations.
Property Law Act s64 provides that:-
“where, before the date of completion or possession whichever earlier occurs, the dwelling house is so destroyed or damaged as to be unfit for occupation as a dwelling house, the purchaser may, at the purchaser’s option, rescind the contract by notice in writing given to the vendor or the vendor’s solicitor not later than the date of completion or possession whichever the earlier occurs”.
The section does not require that the “unfitness” be concurrent with the settlement date. Rather, it suggests that the buyer retains a termination option at all times up to settlement or earlier entry into occupation. If correct, this means that buyers can rescind where the home was rendered substantially unfit for occupation and that the seller’s rectification makes no difference.
Sellers will no doubt argue that the section must be restricted to situations where the damage persists until the appointed time for completion. The very question is likely to come before the courts – soon.
If a buyer was minded to cancel their contract, they would, to perhaps improve their position, consider doing so before the repairs are complete – ie while the home remains “substantially unfit”.
Section 64, despite the best efforts of those drafting off-the-plan contracts for example, cannot be negatived. It applies notwithstanding anything to the contrary in the contract itself.
Naturally a terminating buyer would also need to be careful not to do anything that could be interpreted as affirming the contract.
To meet the “substantially unfit” test, not all parts of the home need be uninhabitable or even damaged. And even though for example, meals could be prepared in a functional kitchen, a home would probably still fail the test if the bedrooms and living areas remained ‘unfit’ from water damage. The question is whether the home has been rendered substantially and occupationally unfit “as a whole”.
We recently posted about a December Tennyson Reach court ruling requiring a 2007 off-the-plan ground floor apartment buyer to settle her contract. The settlement date ordered was 8 February. Ground floor apartments, underground garages, the sales office and significant infrastructure were inundated by river flooding on 13 January. Tradesmen, presumably in the employ of Mirvac – the developer, seller and so-far victorious litigant – have been busily performing repairs for the last 10 days.
It will be fascinating to see whether the buyer attempts a further termination and if so, how the next chapter of the “Tales of Tennyson” will unfold.