House Burnt Down Day Before Settlement

i would have thought that the buyer could get out of it being it is not habitable (after a fire - it needs to be certified a building inspector etc for safety reasons) What happens if one of the beams or structures is not safe and collapse. The insurance should be on the seller not buyer.

i know of a similar scenario here whereby the tenant's mother accidentally put the car in reverse and it hit the beams of one of the house thereby the top floor nearly caved in. Although it was the tenant's fault, the owner insurance covered everything.

 

Will the insurance company always pay out cash rather than insisting on rebuilding?

 

Is that the same in every state that the risk passes to the buyer?

 

The situation is a little different in NSW. Not sure about other jurisdictions. In NSW the risk as to damage to the land does not pass to the purchaser until the earlier of the settlement date or the date that the purchaser takes possession (i.e. where the purchaser takes possession prior to the settlement date). Further, the purchaser has the right to rescind (cancel) the Contract (and be refunded the deposit) where the land is 'substantially' damaged prior to the date of the passing of risk. Land is defined as including 'buildings and other fixtures'.

See CONVEYANCING ACT 1919 - SECT 66K Postponement of passing of risk to purchaser

and

CONVEYANCING ACT 1919 - SECT 66L Power to rescind contract where land substantially damaged

 

Yes can terminate under PLA BUT your insurance has to pay

 

Raises some interesting finance scenarios.

House burns down the day after the contract is signed. The valuation hasn't been done yet (it usually takes a day or two). Bank values on land value, settles on LVR based on land value and insurance makes up the difference. A reasonable outcome for the purchaser, they'll either sell or build (and would have to borrow money to build).

Or...

House burns down the day after finance is approved, the bank never goes back to look at the property again, they finance against the full purchase price. Purchaser is in negative equity with the bank, but they've got an insurance payout. They can either build using the cash, or reduce the loan amount to come back to a reasonable LVR. I don't think the bank would be too happy about it if they found out though.

 

So this doesn't apply to NSW (as per @Dan L 's post) right?
Because I've been setting the building insurance to start on settlement date (for all property purchases to date!). eek

 

yes QLD is the only place that I am aware is like this

totally strange concept.

so what happens if you have a finance clause, and the property burns down before and your finance clause is activated????? so you are responsbile for a house that you cant purhcase or have no legal title on anyway????

also next to consider if the valuation is done before OR after burning


so what about this situation?? you get the contract signed subject to some clause, house burns down, your insurance pays you out $300k to rebuild, the clause is activated, you cant proceed, you keep the $300k ........ PROFIT!!!

hmmmm...sounds like a good dodgy business, "we burn your house down for cash"

 

SA is the same, you're responsible for the property from day dot. Always arrange insurance or get your PM to arrange it for you!

 

None taken and completely understand that. Trust me, I've met a lot of PMs.

Find one with attention to detail, has access to EBM portal and can get you a discount. All the instructions being in writing makes the PM liable and you'd get an output back that confirms all the details.

Oh, and settlement is too late in SA. You really want it as soon as your offer is accepted.

 

If the contract is still subject to finance, it would be fairly simple to have finance rejected on the basis the property is no longer acceptable to the bank (they generally don't like burn out properties, the LVR would also likely be above 100% and outside of policy).

If the contract is unconditional, refer to my previous post.

 

say the property was purchased 300k, you took out building insurance for 400k (silly but say the property was purchased well)
if assessor decides a payout, because they think it takes 400k+ to rebuild or not worth repairing, would they be paying out what is insured or the purchase amount?

also for natural disaster such as flood , earth quake and bush fire etc, normally not many questions asked.. for a fire damaged house due to arsenal or accidental, would assessor drill deep into police report etc or do their own investigations etc.? I mean there is alot discussion about a fire damaged and assessor found out illegal dual occ etc, tenant accidental fire which is not covered under the policy, or simply house wasn't tenanted for period of time, or maybe because of this that start the fire etc.. I mean provider will find what ever to reduce or deny claim right? we're the little fish..

 

At least no one got brunt..

 

Burning down just prior to settlement may create a tax problem. Land that cant be a PPOR or attract a land tax exemption etc. If its a proposed rental can LL insurance cover the lost rent ?

 

Yes, EBM covers 52 weeks lost rent for this purpose. I've not tested a claim in this scenario though.
The building portion would obviously be up to the agreed value.

Speaking of tax, Paul. What would happen to depreciation of the building now that its gone to 0?

 

Most insurers only ever pay market value for a loss. Over insurance isn't truly possible. However under insurance can also see the payout trimmed by a formula. Terms of policy may include debris removal incl slabs, asbestos etc , site plans, DA fees, landscape, fencing costs etc... Read policy and buy with care and consider if LL insurance may also protect rental income.

The insurance proceeds may also result in a CGT issue. Special CGT rules apply to destruction of assets.

 

Had a client with that...The remaining QS deductions can be claimed but then the balance may be assessable. However there was a CGT problem. If its not rebuilt the insurance proceeds it can lead to CGT issues. Special rules can allow rollover to a replacement asset to defer tax issues. Time limits apply.

An area where tax advice is needed.

 

[RR] say it's a shabby 1960 fibro house, and provider decides replacing it. it will be a new build but similar external cladding. Even though you have insured for 400K, but provider may chose a shabby new build that may cost 150k to do. That is an example of over insuring?

[RR] in general would it be most tax feasible if insurance provider chose to replace, rather than payout?