The recent deluge dumped approximately 80 per cent of the city’s annual rainfall in several days, which inevitably caused Brisbane River to burst and create a disaster across Brisbane. Despite the flood crisis, there are many buyers still eager to purchase a property. Attwood Marshall Lawyers Property and Commercial Law Graduate Mieke Elzer discusses the impact the most recent floods have had on the market and the importance of conducting the necessary searches, especially when dealing with properties in flood-prone locations.
Background
There is potential for Brisbane property values to drop if the market mirrors what was experienced after the 2011 flood event. A recent report by CoreLogic demonstrated that following the 2011 floods, Brisbane’s property values took several years to recoup after a price decrease. Brisbane’s property values decreased by 6.1 per cent between January 2011 and January 2012 and did not fully recover until March 2014. It is important to note however that at the time of the 2011 major flood, the market was already in a downturn off the back of the 2008 Global Financial Crisis, with negative buyer sentiment.
Property agents and analysts are confident however that any downturn will be short and succeeded by a swift recovery this time around. Dr Nicola Powell, Head of Research and Economics at Domain, said that property prices in afflicted areas could again take a short-term loss. Despite some homes in Brisbane’s flood-prone zones suffering complete inundation for the second time in 11 years, industry figures believe property prices are too resilient to falter.
PRD chief economist Dr Diaswati Mardiasmo concurred, saying while the floods might temporarily shake market confidence, Brisbane had seen extraordinary property price growth since the onset of COVID-19, with even more to follow in the lead up to the 2032 Olympics set to take place in Brisbane.
It’s compelling market dynamics like these that are sparking renewed bursts of international buyer activity this year, particularly with borders once again open. Ray White New Farm Principal Matt Lancashire has seen increased interstate and international buyer activity, leading to a handful of multi-million-dollar sales alone in the past few weeks. It’s a trend Mr Lancashire said sparked a bidding war between locals and interstate buyers, with one home located in Ascot selling for almost $2 million more than it fetched in 2018.
The impact of floods on property damage
The damage bill from the recent floods will be more than $2.5 billion. Treasurer Cameron Dick has stated that rebuilding flood-ravaged roads and significant infrastructure would account for much of the expenses, with an expected cost of $936 million to be set aside to repair damaged homes and businesses. Queensland authorities approximate 15,000 properties were damaged in the flooding caused by a weather system that let fall more than 1 metre of water on most of the city. Insurance company Suncorp’s Chief Executive, Steve Johnston, has implored Queensland to “build it back better”.
It seems inevitable that homes requiring repairs and rebuilds have already been repaired three or four times before. If climate predictions are accurate then we can expect to experience more frequent and intense floods in the coming decades, and land in flood zones may become unliveable. That is an absolute worst-case scenario – however something all homeowners must consider.
There is compelling evidence to suggest people will want to continue living in the flood zone. With a boiling property market, first home buyers, in particular, may see the disaster as an opportunity to enter the property market. For first home buyers, investors and any other potential buyers, the advice is consistent: Buyer beware.
Flood damage: the real estate perspective
Under the Property Law Act 1974 (The Act), buyers may be able to terminate a contract for a flooded property, however, in most instances they will have to proceed with their purchase. Under a standard REIQ contract of sale, the ‘risk’ of the property transfers to the buyer the first business day after the contract is signed. Under conditions including pest and building inspections and due diligence investigations a buyer could pull out of a contract. However, they would not be able to pull out under a finance condition.
Property deemed uninhabitable
If a house is deemed to be damaged or destroyed to the point that it is “unfit for human habitation”, a buyer could terminate a contract and recover their deposit, according to Queensland Legal Assistance Forum (QLAF) guide to practitioners. However, whether a dwelling fits the scope of habitation is a question of fact and a degree in each case.
Mere water inundation would not be enough to rely on, as some physical damage to the property merely requires repair. For example, where walls are watermarked and require repainting or replacing, or carpets need treatment or replacing, this would fit within the usual meaning of the word ‘damage’.
Further, if a property’s meter board is the only resulting damage and the power cannot be reconnected, the question would arise if a purchaser had the right to rescind under the Act Under Community Title Schemes, the damage must be to the actual lot. Common areas and common property are not covered under the Act.
Buyers are warned not to terminate a contract on the grounds of dwelling uninhabitability without first obtaining legal advice as the “threshold of uninhabitability” is high.
For sellers, there is a chance the property will proceed to settlement, but it’s a race against time. If a seller can return the dwelling to habitable by the settlement date, the sale is likely to proceed.
Risk passing from the seller to the buyer is the key to determining the parties’ rights if a property is damaged between the contract date and settlement. Sellers and buyers who have been affected by the floods should obtain legal advice regarding the Contract terms and who assumes “risk”. will pass
Buying a home in a flood zone
Many properties may be on the outskirts of a flood susceptible area but may not necessarily have been impacted by floodwaters. It is important that buyers look at the flood zone maps to find out the flood history of the property they wish to purchase (or have purchased).
It’s imperative to determine the history of the property being purchased by studying these flood zone maps and comparing the areas affected by the floods.
Three specific types of floods that can occur in the Brisbane region include:
- Fluvial (river) floods – creeks and local rivers breach their banks and flood neighbouring land;
- Pluvial flooding – surface water and flash flooding when urban drainage systems are inundated, and there is a progressive rising of water into the streets and flash flooding comprising of high-velocity torrents of water due to torrential rain over a short period; and
- Coastal flooding – inundation of seawater overland on the coastline (storm surge flooding), usually caused by extreme windstorm events coinciding with high or king tides.
Another important thing to consider is whether the property is insurable for flood and if so, whether the premium is affordable. Not all flooding events are covered by insurance, and you should always get clarification from your insurer about what types of flooding are covered.
It is important to be aware that it can be tough to identify potential flood damage where the property has since been renovated. Properties previously flood-affected are often renovated after the flood event meaning there could be underlying issues that won’t necessarily be visible to the average eye. For example, moisture from the floodwaters may have caused water damage and mould in walls or roof cavities. Thus, the building inspector will need to be on the lookout for tell-tale signs of previous flood damage, especially because water damage and mould can lead to serious health problems down the track.
Most new house purchases are subject to a pest and building inspection before the sale becomes unconditional. A thorough building inspection should be conducted if the house is known to have been in or near a flood susceptible area. For houses in flood zone areas, it’s not uncommon for purchasers to request an inspection before making an offer on the house.
A building inspection will also check that your house is structurally sound and will prepare a thorough building inspection report on the condition of the house and whether it requires work to make it habitable.
Another condition that should be added to the Contract is a due diligence condition. A due diligence condition allows a buyer to conduct certain investigations while the contract is on foot. For example, a buyer may obtain a flood level search on the property and in the event the results are unsatisfactory, the buyer can terminate the contract. A due diligence condition is practical as buyers do not have to rush to complete property searches before entering a contract and provides a safety net, in the event they buyer has found unsatisfactory results, to terminate the contract.
Building and pest inspections and your Contract of Sale
You must act reasonably when entering any negotiations with the seller after receiving a building and pest inspection report. Even if your lawyer has read over the Contract before it’s signed, don’t assume the scant mention of a minimal defect in the report will permit you to terminate the Contract. The seller possesses the right to dispute your attempt to pull out of the Contract if it is not considered reasonable.
Several factors are considered when determining what’s “reasonable”, including:
- The age of the property
- The quantity and severity of the issues; and
- If the issues were evident at the inspection time and when the parties negotiated the price.
Queensland Contracts:
In Queensland, standard REIQ contracts include a standard building and pest condition that allows the contract to be subject to a satisfactory building and pest inspection.
This condition permits the buyer to get a licensed inspector to conduct a building and pest inspection of the property.
If the buyer is not satisfied with the results of the inspection report, they can elect to terminate the Contract and will receive their full deposit back. The buyer must act reasonably.
Time is of the essence in Queensland, which means the buyer has until 5pm on the condition due date to provide written notice to the seller whether they are ‘satisfied’ with the inspection. If written notice is not given to the seller by 5pm on the due date, the seller has the right to terminate the Contract. However, this is the sellers only remedy and the full deposit will be refunded to the buyer.
New South Wales Contacts:
In NSW, standard Contracts of Sale are “full disclosure contracts”, which means the seller should include all details about the property in the Contract. However, the contracts do not contain any pre-purchase building or pest reports. Therefore, it is up to the purchaser in NSW to obtain these reports before agreeing to an unconditional exchange of contracts.
Attwood Marshall Lawyers – helping ensure due diligence when buying and selling property
Our property lawyers understand the importance of considering the damage that properties may have suffered in the recent floods and why it is imperative to do the appropriate searches to ensure you are aware of all issues before finalising a property transaction.
Every property is different and will require different searches depending on its location and what type of property it may be. Our experienced property & commercial team can determine which searches you need to conduct. We will ensure the conveyancing process is completed effectively and all parties have a comprehensive understanding of their rights and obligations under the Contract.
As a PEXA certified law firm, we complete our conveyancing electronically to ensure settlement happens on time without delay.
We can provide advice on contracts, searches, negotiating special conditions, and disclosure. For advice, contact our Property and Commercial Department Manager, Jess Kimpton, on direct line 07 5506 8214, email jkimpton@attwoodmarshall.com.au, mobile 0432 857 300 or free call 1800 621 071 any time.
We have lawyers in Brisbane, Gold Coast, Melbourne and Sydney.
If you require assistance outside regular business hours our Robina Town Centre office also opens Thursday nights until 9pm and Saturday mornings until 12noon.
Make an appointment with the team instantly online now.
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