Understanding Risk Passes to Buyer in South Australia Property Contracts
Plain English Definition
"Risk Passes to Buyer" means that the legal responsibility for any physical damage or loss to the property transfers from the vendor to the purchaser at the moment the contract is signed by both parties. In a South Australia property contract, this is a critical departure from other states, as the buyer becomes responsible for the home's condition long before the final settlement date or the handover of keys.
The Danger Zone: Buyer's Risk
- Immediate Insurance Necessity: Under the standard REISA Contract, the buyer's risk begins the moment the contract is formed, meaning you must have a building insurance policy active from the date of signing to avoid total loss.
- Natural Disaster Liability: If a bushfire, storm, or flood damages the property in the weeks leading up to settlement, the buyer is generally still legally required to complete the purchase at the full agreed price.
- Vandalism and Accidental Damage: Should a window be smashed or a pipe burst after the contract date, the financial burden for repairs falls on the buyer, even though the seller still resides in the property.
- Limited Statutory Protection: While the Land and Business (Sale and Conveyancing) Act 1994 provides some cooling-off rights, it does not automatically protect a buyer from property damage that occurs during the settlement period.
- Lender Withdrawal Risk: If the property is significantly damaged and the buyer's risk has already passed, a bank may refuse to fund the loan at settlement, leaving the buyer in breach of contract and liable for the full purchase price.
- Fixed Purchase Price: The REISA Contract typically does not allow for a price reduction or "set-off" if the property’s condition deteriorates, forcing the buyer to claim through their own insurance rather than penalising the seller.
Real-Life South Australia Scenario
Wei, a Chinese-Australian investor, signed a REISA Contract to purchase a character home in Prospect. Two days after the contract was signed, but three weeks before settlement, a severe Adelaide storm caused a large gum tree limb to fall through the roof, causing $15,000 in structural damage. Because the risk had already passed to the buyer under South Australian law, the vendor was not legally required to fix the roof or lower the sale price. Wei was forced to pay his insurance excess and manage the repairs himself while still being obligated to settle the property on time. The lesson is that in South Australia, you must arrange building insurance the very same day you sign the contract.