It’s a nightmare scenario for any purchaser: you are in the process of acquiring a warehouse, transfer documents have been signed, but transfer has not yet been registered. Before occupation, the property is significantly damaged by recent floods. The deed has not yet been lodged, and you are concerned the seller may not repair the damage. What are your legal options?
There are generally two possible outcomes in a situation like this. If the warehouse has been completely destroyed, performance in terms of the sale agreement becomes impossible and the agreement is terminated. In most cases of natural disasters, neither party would be liable, as the damage would be regarded as an unforeseen event beyond either party’s control.
However, if the warehouse is only partially damaged and transfer is still possible, the situation becomes more complex. The seller may elect to repair the damage and proceed with the transaction. If the purchaser no longer wishes to continue, a lawful basis for cancellation would be required — for example, evidence that the structural integrity of the building has been materially compromised.
In many commercial transactions, the property will be insured at the time of the damage. Where the warehouse is bonded, insurance is typically a condition of the finance agreement, requiring the property to be insured in favour of the lending institution. In such cases, the seller would generally lodge a claim and use the proceeds to restore the property.
From a purchaser’s perspective, there are practical steps available. The purchaser may insist that all necessary repairs be completed prior to transfer. The lender should also be notified of the damage, particularly if finance documents have not yet been signed. Financial institutions will typically conduct inspections before registration in the Deeds Office.
The position becomes more complicated if occupation has already taken place prior to transfer. The sale agreement must then be examined carefully to determine when risk passed from seller to purchaser. In many commercial agreements, risk remains with the seller until transfer, but this can be varied by agreement, especially where early occupation is granted.
For this reason, it is critical that commercial properties remain fully insured until transfer is registered, and that purchasers ensure adequate insurance cover from the date risk passes to them.
As always, each matter must be assessed on its own merits. Buyers and sellers should seek guidance from experienced commercial property brokers and conveyancing attorneys to understand both the legal position and the practical implications before taking action.
