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Introduction

Australia’s bushfire has lasted more than a hundred days this season, and by the time this article publishes, there are still numerous patches of wildfires in the state of New South Wales that were ranked by the NSW Rural Fire Service as “uncontrollable”.

It happens so often that we are almost desensitised by these events and have gotten quite used to its occurrence. Every year around November or December, the news would start to roll about where it happens, the staggering value of properties damaged, and worst of all, the lives that have been lost.

While the Australian bushfires became the headline internationally in the first month of 2020, it was immediately followed by the most catastrophic thunderstorms in the beginning of February, which caused severe flooding across the Sydney Greater Metropolitan Area. Houses were flooded, garages submerged in water, cars and other possessions were nevertheless damaged.

When we read about the statistics about how many people lost their most valuable possessions – their homes, there seems to be a cold comfort in the air: at least they have insurance.

Role of insurance

Many people consider insurance as a backup plan. A fall-back position that can be relied upon in an unfortunate crisis. Insurance providers offer an endless series of products that seem to be able to cover just about anything in one’s life these days. If you have a car, you should not be a stranger to compulsory third-party car insurance and comprehensive insurance. You may have acquired private health insurance for dentist visits and prescription glasses. There are also many insurance products for real properties: home and content insurance, landlord insurance, strata insurance… As long as you are being honest about your circumstances, pay the premium religiously, then when bad things happen and assets are destroyed, the insurance company would honour your claim and hopefully give you some reliefs to the economic loss you suffered.

But we often forget that insurance providers are, at core, a profit-driven industry that derive those billions of dollars of profit yearly from doing what they do best – assessing the associated risks. When the associated risk of providing insurance to your asset increases, the insurance premium goes up exponentially in response before it reaches a threshold that the insurance company considers it would be too costly for them to take the risk to cover you.

In other words, if your property is located on a historically-proven disastrous zone, with an existing defect, or with a list of previous claims, then the insurance company may refuse to provide you any insurance cover for your concerned asset.

Then, you will be on your own.

Identify the risk at the beginning

Rather than paying an unexpectedly expensive insurance bill for decades, or brace oneself to face the devastated economic loss when disaster strikes, it would be better if the purchaser became more informed about what they are getting themselves into before making the grand purchase of property.

Where are you buying? Has the neighbourhood been affected by floods or bushfires? What’s your plan for this property in several years time? Is redevelopment in your plans? There are so many factors that may have to be taken into consideration.

Some quick self-checks

When you are interested at a real property, it is easy to start by conducting some general research about the land, the building, and the local area. Online websites, message boards and social platforms would able to give you some idea about what you may be facing after you become the owner.

Two years ago there was a near-new apartment selling at what is seemingly, a bargain price. The writer was excited about the cheap purchase, but also very cautious. After a 10 second search on Google News with the property address, it was realised that there is still significant fire risk existing in the building and such risk had already caused one visitor’s death and another resident’s permanent disability a few years ago. The “bargain selling price” was not attractive anymore, in fact, the writer had just dodged a bullet by this quick check—and avoided some very expensive ongoing strata administrative levies and sinking funds (to rectify the building defect, and pay for the astronomical insurance policy acquired by the strata building), and the grave difficulties of selling the property in the future.

Contract of Sale of Land

Regardless of whether the property or land is brand new or established, the Contract of Sale of Land would always disclose some very essential information, for example the attached local council’s planning certificates would reveal whether the land is suitable for future redevelopment, or whether it is situated at any zones that may be prone to bushfire or flood. The conveyancers would also be able to look for other warning signs that may cost you many headaches in the future and warn you the potential costs in advance, so you can be in a better bargaining position with the vendor if you wish to proceed with your purchase.

A client of mine was interested in buying a newly built house located in a community situated right next to a vast area of grassland. After reviewing the contract, it was discovered that the house was situated on bush fire prone land and the Bushfire Attack Level (BAL) rating was relatively high. She was further advised that there are building protocols and protective measures that must be followed and implemented by the builder and the building designer of the property she was interested in. In the end, she had decided not to proceed with the purchase despite the developer offering her a $75,000 discount of the original purchase price.

Building inspection

In the previous paragraph we talked about how a proper review of the contract by a solicitor could reveal vital information in relation to the land the building is situated on. How about the building itself? There could be other hidden issues and building defects with the house or the unit, and they are hard to notice in the 30 minutes open house inspection time. Yet repairing them later could be costly and time consuming.

Conducting a building and pest inspection would be able to provide an independent review of the condition of the building by a qualified building professional. It usually costs around several hundreds of dollars but you will get to know in advance what the problems are, and you can use this information to negotiate with the vendor for a lower price.

Conclusion

Before attending an auction or signing any contracts, a purchaser should always ask the vendor for a copy of the contract to be reviewed by their own solicitor in advance.

Purchasing a property is an important decision, an experienced property solicitor would be able to inform you the legal process of the purchase to ensure a fuss-free transaction.

Please note: The content of our publication is intended for general information purposes only, and should not be construed as legal advice on any matter. Please contact our firm for discussion of your particular circumstances.