The property I bought has since been damaged, what happens now?
A blog article by: Neil Mc Kinon
It’s a nightmare scenario for any buyer: “We are in the process of buying a property in KZN. We have signed the transfer documents from the transferring attorney but not the home loan documents from the home loan attorney. We have NOT occupied the property yet. The house has been damaged significantly by the recent floods. We are not confident that the owner will pay for the damages even though the deed has not been lodged with the Deed’s Office. We won’t be able to afford to fix the damages ourselves. If we decide to go this route, is there any legal ground to cancel the sale? What are my legal options?”
There are one of two possible outcomes following such an unfortunate incident. Either the property has been significantly damaged, or it has been demolished leaving the purchasers with nothing. In the latter situation, the answer is simple: performance in terms of the agreement has become impossible and the agreement is terminated. The question as to who is liable is debatable but in most circumstances like this neither party would be liable as the damage would be considered an act of God.
However, what happens if the property is only slightly damaged and performance in terms of the initial agreement is still possible?
In this instance, the seller may still wish to perform and may repair the damages on his own accord. If the purchaser no longer wishes to proceed, they will need to find a legal remedy to allow them to terminate. This may come in the form of an engineer’s report outlining structural issues at the property in question.
It is likely that the property would have been insured at the time of the damage, in which case the seller would need to file an insurance claim and have the damages repaired. This is most likely because homeowners’ insurance is often mandatory when a property is bonded to a financial institution. This means that it is a condition of the mortgage bond that the mortgagor insure the property in favour of the bank (mortgagee) for the duration of the home loan.
It goes without saying that any homeowner would be well-advised to insure their property, especially as major damage is always a possibility, however remote.
In the flood scenario, the advice to the purchaser would be that the performance of the agreement by the seller is impossible in which case the agreement can be terminated in full. Alternatively, the purchaser would be well entitled to insist that the seller attends to repairs before transfer. The purchaser would be entitled to notify the bank that the property has been damaged and refuse to sign the home loan documents. The bank in any event would conduct an inspection on the property prior to registering in the deeds office.
The situation however becomes more complicated if the purchaser takes occupation prior to registration. In these circumstances, it must be determined exactly what the purchaser agreed to either in the initial agreement or in the subsequent addendum to the offer to purchase.
Usually, the seller would remain liable for the property until the date of transfer and registration, but it can be agreed under certain circumstances that the purchaser accepts full responsibility from the moment of taking occupation. In this instance, the seller may seek damages from the purchaser if the property is damaged prior to registration given that it was his responsibility.
However, it is advisable for any seller to ensure that the property is fully insured up until the date of transfer. Similarly, it is advisable for the purchaser to ensure that the property is insured from the date of transfer.
Readers note: Each legal problem should be assessed on its own merits and parties would be well advised to seek the assistance of a property professional in the event of a breach. Legal solutions are not only assessed on the merits but also on the practicality of instituting legal action. Sellers and buyers should always work with reputable sales agents and transferring attorneys who are specialists in their fields.
For more information, please contact Neil Mc Kinon – NeilM@hammondpole.co.za