When you’ve signed a contract to buy or sell property, but something goes wrong before settlement, understanding who’s responsible for damage costs can save you thousands. This situation is more common than you might think, especially in vacant properties that become targets for vandalism or theft.
What Happens When Third Parties Damage Your Property?
Picture this: you’ve just exchanged contracts on a house sale. The property is vacant, and you’re counting down to settlement day. Then disaster strikes. Vandals break in and steal copper piping from the walls, leaving significant damage behind.
Neither you nor the buyer caused this damage, but someone has to pay for it. The key question becomes: who bears the financial responsibility when a third party damages property between exchange and settlement?
NSW Law is Clear: Sellers Bear the Risk
In NSW, the law provides clear guidance on this situation through the Conveyancing Act 1919. Section 66K states that the risk of damage to property doesn’t transfer to the purchaser until settlement occurs (or until they take possession, whichever happens first).
This means that as a general rule, sellers remain responsible for any damage that occurs between exchange and settlement, regardless of who actually causes that damage. Whether it’s vandalism, storm damage, or theft, the financial burden typically falls on the vendor.
When Can Buyers Walk Away?
Section 66L of the Act gives purchasers an important out clause. If property suffers “substantial damage” after exchange but before settlement, buyers have the right to rescind the contract entirely.
“Substantial damage” means damage severe enough to make the property materially different from what the purchaser originally agreed to buy. This sets a fairly high bar – minor vandalism or theft wouldn’t typically qualify, but major structural damage from fire or flood might.
If a buyer successfully rescinds under this provision, all money paid must be refunded, and both parties walk away without further liability.
What About Lesser Damage?
Not all damage qualifies as “substantial.” For lesser damage that doesn’t give buyers the right to rescind, Section 66M provides another solution: the purchase price must be reduced by an amount that’s “just and equitable in the circumstances.”
This means if vandals steal your copper piping but the house remains fundamentally the same property the buyer contracted to purchase, the sale proceeds, but at a reduced price reflecting the damage and repair costs.
Standard Contracts Mirror the Law
Residential property contracts in NSW have evolved to reflect this legislative framework. Standard contract clauses make it clear that:
- Legal title doesn’t pass until settlement (Clause 16.2)
- If purchasers take possession early, risk transfers to them at that point (Clause 18.4)
This alignment between statute and contract practice provides clarity and consistency across property transactions.
Practical Steps for Property Sellers
The lesson here is straightforward: maintain comprehensive insurance coverage right up to settlement day. Many sellers make the mistake of cancelling insurance once they’ve exchanged contracts, thinking their responsibility has ended. This couldn’t be further from the truth.
Your insurance should remain active until the keys are handed over and settlement is complete. You never know when vandals, weather, or other unexpected events might cause damage you’ll be liable for.
Planning Ahead Prevents Problems
Understanding these rules before you list your property for sale can help you make informed decisions about insurance coverage, security measures for vacant properties, and contract negotiations.
The law in NSW clearly places responsibility on sellers for third-party damage, but knowing this ahead of time allows you to plan appropriately and protect yourself financially.
Need Help with Your Property Transaction?
Property law can be complex, and every situation has unique factors that might affect your rights and obligations. If you’re buying or selling property in Penrith and want to ensure you’re properly protected, we’re here to help.
Our conveyancing team understands the local market and NSW property laws inside and out. We’ll make sure you know exactly where you stand and help you navigate any issues that arise between exchange and settlement.
Ready to get started? Contact Complete Legal today to discuss your property transaction. We’ll review your contract, explain your obligations, and ensure you’re fully prepared for a smooth settlement.