What Happens If a Property Is Damaged Before Settlement?
A plain-English guide for Victorian buyers and sellers navigating the unexpected
The Core Principle: Risk Usually Stays with the Seller
In Victoria, under the standard LIV/REIV contract conditions used in many sales, the vendor (seller) generally carries the risk of loss or damage to the property until settlement is completed. This position can change with special conditions or if the buyer takes possession before settlement, so the contract should be checked carefully.
This means if a property is damaged between contract signing and settlement day, the buyer isn’t automatically stuck with a damaged asset. The seller remains responsible, unless the contract specifically states otherwise.
Key point: Always check your contract. Some contracts include special conditions that shift risk to the buyer earlier. Your conveyancer should flag this before you sign.
If the buyer gets early access (keys released, storage, works, or moving in) before settlement, the usual “seller bears the risk until settlement” position can become more complicated. Make sure any early access is documented and reviewed by your conveyancer before it happens.
Early Possession / Early Access: When Risk Can Shift
Sometimes a buyer is allowed into the property before settlement. Moving items in early, storing belongings, starting minor works, or even occupying the home under a licence arrangement, are all examples.
This matters because taking possession early can change who carries the risk and can also affect what rights you have if damage occurs before settlement.
Common early access scenarios
- Early occupation (buyer moves in before settlement)
- Licence to occupy (a written agreement allowing the buyer to use the property before settlement)
- Access for works (repairs, renovations, measurements, tradies)
- Storage access (placing goods in sheds/garages)
- Keys released early (even without moving in)
Why it changes the risk picture
If the buyer is treated as being “in possession” before settlement (even informally), it can:
- limit the buyer’s ability to rely on protections that apply only when the buyer is not in possession (including, in some cases, termination rights where the property becomes unfit for occupation), and/or
- create arguments about whether the buyer contributed to, caused, or assumed responsibility for certain damage.
Practical protections if early access is needed
If you’re the buyer, try to ensure any early access is documented in writing and covers:
- who carries risk for damage during access
- who must maintain insurance, and whether the buyer must note the seller’s interest (or vice versa)
- responsibility for utilities, security, and keeping the property safe
- what works (if any) are allowed, and who is liable if something goes wrong
- an obligation to restore or make good
- what happens if settlement is delayed or does not proceed
Your Rights If the Property Is Damaged
Victorian law distinguishes between two scenarios:
| Damage Level | Your Rights as Buyer |
|---|---|
| Property destroyed or unfit for human habitation (and the buyer is not in possession) | You may be able to end the contract by written notice within the required timeframe (in the situations covered by the Sale of Land Act) and receive a refund of money paid. |
| Property damaged but still liveable | You generally cannot end the contract solely because of the damage, but you may have a right to compensation depending on the contract terms and circumstances. |
If you discover the property has been destroyed or rendered unfit for human occupation before you take possession, you have 14 days from becoming aware of the damage to give written notice ending the contract.
Miss that window, and your options become significantly more limited.
What Counts as “Unfit for Human Habitation”?
• Fire damage to major structural elements
• Flood damage causing mould contamination or structural compromise
• Storm damage removing significant portions of the roof
• Landslip affecting the building’s foundations
What About Insurance?
Insurance can be misunderstood in property transactions. In practice, sellers should maintain appropriate insurance up to settlement, but buyers should not assume the seller’s policy will resolve every issue. Policy terms differ, and lenders may require buyers to arrange building insurance from around the contract date.
Most lenders will strongly recommend (or require) you to arrange building insurance from around the date of contract. This protects both their security interest and your own position if something goes wrong.
Our advice: Don’t wait until settlement to think about insurance. Speak to your insurer when you sign.
The Pre-Settlement Inspection: Your Safety Net
Victorian buyers have a right to inspect the property at any reasonable time during the week before settlement.
This isn’t just about checking the curtains are still there. It’s your opportunity to verify the property is in the same condition as when you signed the contract.
What to look for:
- Obvious new damage (water stains, cracks, broken fixtures)
- Missing items that were included in the sale
- Changes to the property’s condition since your last visit
- Evidence of recent repairs (which might indicate undisclosed damage)
If you find damage, document it immediately with photos and timestamps. Then contact your conveyancer before settlement proceeds.
September 2025 Contract Changes: What’s New
Note: not every sale uses the updated form. The changes below relate to the updated REIV/LIV contract, and older versions may still be used depending on the transaction. See Link at end for a link to the Legal Practitioners’ Liability Committee description of these specific changes.
| Change | What It Means |
|---|---|
| $5,000 withholding mechanism removed | Previously, some contracts allowed an amount (up to $5,000) to be withheld to deal with minor pre-settlement damage disputes. Under the updated contract this mechanism has been removed, meaning claims generally need to be pursued directly. |
| Building report standards | If a building report condition is used in the updated form, reports must comply with AS 4349.1-2007, and only a major defect triggers the termination right under that condition. |
| Domestic building insurance notice | The updated form shortens certain timeframes around domestic building insurance, depending on the clause and circumstances. |
Regional Victoria: Why Local Knowledge Matters
What To Do If Damage Occurs
- Document everything: photos, videos, timestamps
- Contact your conveyancer immediately
- Request the seller’s insurance details (if relevant)
- Assess whether the property is habitable or uninhabitable
- If uninhabitable and you are not in possession, provide written notice within 14 days
- Consider getting an independent building assessment
- Contact your insurer immediately
- Notify the buyer and their conveyancer
- Arrange for damage assessment
- Organise repairs where appropriate
- Keep all receipts and documentation
- Be prepared for potential settlement delays
How to protect yourself between signing and settlement
- Knowing your rights
- Acting within the timeframes
- Having a conveyancer who catches problems before they compound
If you’re buying or selling and have questions about how property damage provisions apply to your situation, our conveyancing firm, Conveyancing Today, is here to help with plain answers, not legal jargon.
Further Reading
| Element | What It Covers |
|---|---|
| 14-Day Rule | Sale of Land Act 1962 (Vic), s 34 |
| Inspection Rights | Consumer Affairs Victoria, ‘Before property settlement’ (see below) |
| Updated Contract of Sale 2025 | Law Institute of Victoria / REIV contract update information – Refer to legal professional commentary on Sept 2025 LIV/REIV contract updates |
| Resource | What It Covers |
|---|---|
| Consumer Affairs Victoria: Buying and Selling Property in a Disaster | Official Victorian Government guidance on property damage, buyer rights, and settlement during disasters |
| Consumer Affairs Victoria: Before Property Settlement | Pre-settlement inspection rights, insurance requirements, and property condition obligations |
| Land Titles Office Victoria | Official registry for property titles, land information, and property certificates |
| Insurance Council of Australia | Independent information about insurance coverage and disaster response |
| Victorian Building Authority | Building permits, domestic building insurance, and construction standards |
| Legal Commentary on September 2025 update to Contract of Sale | Legal Practitioners Liability Committee commentary on September 2025 update to the Real Estate Institute of Victoria (REIV) / Law Institute of Victoria (LIV) Contract of Sale of Land |
This article provides general information only and is not legal advice. Every property transaction has unique circumstances. For advice specific to your situation, speak with a licensed conveyancer or legal practitioner. Examples are illustrative only.
About Conveyancing Today
We handle conveyancing for buyers, sellers, and families across Pakenham, Officer, Clyde North, Berwick, Cranbourne, Drouin, and Warragul. Our head office is in Drouin, and we work with clients throughout the Cardinia and Baw Baw shires.
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