• News & Events
• News
• News Archive
• Media Contact

The importance of groundwork

By Richard Lang, Partner & Emma Tomblin Solicitor

First published in The Press, 14 May 2011

What do you do if you want to buy a house but it has damage caused by the recent earthquakes? How can you make sure that the damage will be repaired after you have brought the house?

The simplest answer is that you could take over the seller’s rights under their Earthquake Commission (EQC) and insurance claims covering the damage to the property.

An assignment of the seller’s EQC claim is the legal way that the seller, as the owner of the property at the time of the damage, transfers all their rights under the insurance claim with the EQC to you as the buyer. Taking an assignment of the seller’s EQC claim means that the EQC must deal with you to resolve the claim.

So if you want to buy a damaged house, what should you do first?

The first thing that you need to do is to make sure that the contract to buy the house includes a clause saying that the EQC claim will be assigned to you. The contract clause should say that the seller has made an EQC claim for the damage and will assign or transfer to you, as buyer, all their rights to that EQC claim. Most sale and purchase agreements prepared by real estate agents following the September earthquake should include a reasonably standard clause covering assignment of the seller’s EQC claim, but if you are in any doubt contact your lawyer before signing.  It is important to make sure that the clause covers both EQC claims for the September 2010 and February 2011 earthquakes if the house was damaged by both earthquakes. 

The second thing you need to do is to think about what damage has been caused to the house or other parts of the property to ensure that the EQC claim will cover it.

The EQC does not cover all of the damage which a property may have suffered in an earthquake. The EQC covers damage to a house, as well as to the land underneath the house and within the surrounding eight metres. It will also cover the main driveway, but only where it has not been surfaced by, say, asphalt or bricks. The EQC does not cover things like swimming pools, concrete paths, or fences.

If there has been damage which the EQC does not cover, you will also need to get an assignment of the seller’s claim with their own insurance company. This assignment would require the seller’s insurer to deal with you to resolve the claim for the damage not covered by the EQC.

You may also need a transfer of the seller’s private insurance claim where the damage to the property would be more than the maximum amount the EQC covers. The EQC provides cover of up to $100,000 per house (as well as an extra 15% for GST). If there is damage to the property which is more than that maximum, it is the seller’s private insurance claim which would need to cover those extra costs.

Once you have thought about what damage the property has and whether it is covered by the EQC or the private insurance company, or potentially by both, the next thing to think about is the excess payable on those insurance claims.

As with any insurance claim, the EQC charges an excess. The excess for damage to a house is a minimum of $200 per claim, rising to 1% of the claim payout, meaning a maximum of $1000 plus GST. If a private insurance claim has been made then there will also be an excess to pay on that claim. The amount of that excess will be detailed in the seller’s insurance policy.  There is a standard form of assignment document published by the New Zealand Law Society, but that document still requires the buyer and seller to agree on who pays the excess.

The excess on the insurance claims could be a sizeable amount of money. When you are signing the contract to buy the house, you should agree with the seller whether it is you or the seller who will pay the excess.

There are a number of other things you should be sure of when you take on an assignment of the seller’s EQC or private insurance claim. These include:

• Whether the seller’s insurance cover provides for the full replacement of the house or is limited to some lesser amount. In this case there is a risk the repairs may cost more than the insurance will cover.
• Whether it is possible the damage to the house could have been there before the earthquake, as in that case the EQC and/or insurance company may decline to pay for the repairs because it was pre-existing damage.

The purchase of a house is an important investment so you should take good legal advice to make sure that you know what your rights are for getting any damage to the house repaired after you have purchased.

Richard Lang is a partner of national and trans-Tasman lawyers Duncan Cotterill. R.lang@DuncanCotterill.com

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.