The summer of 2021-2022 has seen much of the east coast of Australia subjected to severe flooding due to extreme downpours, with many places setting new monthly records for rainfall.
Climate change, La Nina, a random weather pattern – there are many contributing explanations for the severity and increasing frequency of these events but for those considering the purchase of a particular house, understanding whether the property is located in an area prone to floods is a vital piece of due diligence to do before signing the purchase contract.
The greater frequency of flooding events raises a number of potential legal and financial issues. In suburbs along the Brisbane River in Queensland, and in towns like Lismore in northern NSW, for example, two major flooding events within a decade have made the cost of insurance almost impossible to afford for many homeowners.
In Brisbane 94 suburbs experienced some degree of flooding in the city’s devastating 2011 floods, while an estimated 15,000 homes were affected by flooding during the latest 2022 event.
For those who buy a house in a flood-prone area but were unaware of the risk because of a misrepresentation by the property’s vendor or a developer, the question arises as to whether the contract can be rescinded and the purchase price returned to the buyer.
We’ll take a closer look in this article at some of the issues around buying a house in an area that can flood.
Working out whether the property is in a flood area
It’s important for a prospective buyer not to rely on the representations of the seller. The vendor is interested in offloading the property and will likely not mention a history of flooding or potential flood risk, even if asked directly.
Local councils will generally keep historical records and detailed flood maps of past flooding events which a prospective buyer can consult before buying a property in the area. These records should provide documentary evidence of whether the property has been flood-affected in the past.
It’s important to check how recently the flood maps were updated due to the increasing occurrence of flood events. Brisbane and Ipswich’s flood maps, for example, were updated after the major 2011 flood event.
Some properties may be on the edge or just outside a flood-susceptible area, a fact that will be useful for a buyer to know both for contractual and insurance reasons when purchasing a property. Brisbane City Council, for instance, changed its risk criteria after a 2016 review so that some properties that did not flood in 2011 were subsequently classified as ‘very high risk’ for insurance purposes.
Apart from local council resources, the Queensland government also developed a Floodcheck app that provides interactive flood data and information sourced through the Queensland Flood Mapping Program which a person seeking to buy a property in a particular area can refer to.
Similarly, Brisbane City Council offers property owners a free Floodwise Property Report whereby people enter address details on the council’s website and are provided with a report on the property’s potential flooding risk based on the latest computer modelling.
As buyers do with building and pest inspections, private companies can also be employed to determine a property’s flood risk. Specialist ‘climate valuers’ now routinely perform this service for would-be buyers, particularly in areas with a reputation for flooding. Most professional building inspectors will also be able to detect evidence of earlier flooding at the property, including in obviously newly renovated properties.
What does the contract say?
The risk inherent in owning a property passes from the seller to the buyer at 5 pm on the first business day after the date on the contract, under a standard residential property contract in Queensland. This enables the buyer to obtain insurance for risks which can include flooding.
A conditional contract also provides a cooling-off period of five business days from the date the contract is received in which it can be terminated for any reason with the imposition of a small financial penalty, currently 0.25%.
Should a property flood before a buyer has a chance to complete a building inspection, for example, the buyer maintains the right to terminate the contract.
Unconditional contracts are becoming increasingly common in the current market – where a buyer waives their right to a cooling-off period and purchases without the need for due diligence, inspections, reports and the like – eliminating their right to terminate the contract, the buyer can only rely on section 64 of the Property Law Act 1974 (Qld) which allows a buyer to terminate the contract if a property is damaged or destroyed to such an extent that it is unfit for occupation as a dwelling.
Case example: In Dunworth v Mirvac Qld Pty Ltd, Ms Dunworth attempted to extract herself from a contract to buy a luxury $2.3 million off-the-plan ground floor apartment along the Brisbane riverfront after she alleged false, misleading and deceptive representations by the developer, including about the apartment’s elevation.
Mirvac then obtained a Supreme Court order forcing Ms Dunworth to settle the contract plus interest and legal costs. But just weeks before the settlement date in February 2011, the property was flooded by 600mm of water during the city’s widespread floods. Ms Dunworth then sought to rescind the contract on the basis of section 64 of the Property Act.
Whether a dwelling is unfit for an occupation will depend on the facts in each case. In some cases, flood damage may occur but does not render the property unfit for occupation.
An additional complication arises when a buyer is waiting on the approval of finance in order to settle the purchase and the property is damaged by flooding in the meantime. In this circumstance, the lender may require a new valuation of the property, the result of which may leave a buyer without finance and unable to settle.
What about insurance?
Insurance should be organised as soon as possible after the signing of a purchase contract, confirming that coverage for loss through flooding is included. As mentioned, the frequency of flooding events in certain locations is making insurance coverage either unfeasible or impossible.
A buyer may be offered insurance protection by virtue of section 50 of the Insurance Contracts Act 1984 (Cth), allowing the buyer to be covered by the seller’s insurance policy until either possession or settlement. The buyer, however, will only be covered for whatever the seller’s insurance policy covers, potentially leaving them with significant repair costs should the property flood in the meantime.
Why expert legal advice is advisable
If you are looking at property in an area you suspect may be susceptible to flooding, seeking out the guidance of experienced property lawyers like Delaney & Delaney on the steps to take in assessing the risks involved is highly advised.
From the searches to conduct on flooding risk to the insertion of a special condition in the contract to cover the scenario where a history of flooding is discovered during the purchase period, we will provide you with wise and timely advice in order to make the most informed decision possible.
Call us today to discuss buying property in a flood-prone area.