What happens if the house is damaged before settlement?

Say a storm takes part of the roof off the house you’re buying, three days before you’re due to settle. Until you get the keys, damage like that is the seller’s risk. If the seller hasn’t fixed the roof by then, you can pay less for the house, and if it’s bad enough, you can walk away.¹

The idea is that damage before you get the keys shouldn’t automatically leave you paying the full price for a damaged house. But you don’t get to choose your remedy: that depends on whether the damage has left the house fit to live in.

The seller’s insurance can decide what one of your options is worth. And if you and the seller can’t agree how much should come off, you’ll normally still settle on the day, with part of the money held back. You could still be arguing over the final figure after you’ve moved in.

When the house becomes your risk

The standard form, the one the Law Association and the Real Estate Institute publish, keeps the house at the seller’s risk until you get the keys. That covers the land too, so a slip or a section full of silt counts. The same goes for the chattels, items included in the sale that aren’t part of the building itself, like the stove, blinds and curtains.¹

On that form, you get the keys on the day of settlement, the day your lawyer pays the balance of the price and the property becomes yours. From then on, any damage is your loss. So you need your own insurance in place from that day.¹

Sometimes settling and getting the keys fall on different days, and then the form may not protect you in the usual way. If you move in early, the risk passes to you from the day you get the keys, unless your early-entry arrangement says otherwise. Paying less or walking away only covers damage done before then.

If the seller stays on after settlement, say renting the house back, the risk is still theirs. But you’ve already paid the full price, so there’s nothing left to take money off. Before you agree to either, ask your lawyer how you’d be covered.

What you can do about the damage

The seller can fix the damage before the settlement date, and then the price stays as it is. If the damage is still there, the form gives you money off or, in worse cases, a way out, but not the right to make the seller repair it. Which you get depends on one question: on the settlement date, could you still live in the house?¹

If you could still live in it

Then you have to go ahead and buy it, even if you’d rather not. After all the work of getting this far, that can be hard to take, but walking away isn’t one of your choices. What you get instead is a lower price.

The price comes down by however much the damage has cut the property’s value. Where someone can fix the damage, that counts as the reasonable cost of fixing it. So the roof should mean a smaller payment when you settle, rather than a repair bill of your own once you’ve moved in.¹

If it’s unfit to live in

If the damage leaves the house unfit to live in on the settlement date, you get a choice. The form’s word is “untenantable”, but for most houses it doesn’t say what that means.

The courts ask whether the house as a whole is unfit for someone who wants it for the same purpose you do, which for most buyers means as a home. Whether someone could put up with living there isn’t the test. And it’s judged on the settlement date, not weeks later once the house might be usable again.²

In one Auckland case after the January 2023 storms, a slip left the house under a Civil Defence red placard on the settlement date. Six weeks later the placard went to yellow, with only the decks and the main bedroom closed off. The sale hadn’t gone through, and the buyer cancelled weeks after the settlement date had passed.

Applying that test, the High Court found the house had been unfit on the settlement date, so the cancellation stood. In 2025 it ordered the sellers to repay the buyer’s money with interest. Even under the yellow placard, the court said it wasn’t fit as a family home.²

On land zoned rural, the form sets a firm test instead: the house counts as unfit if the damage cuts its value by more than 20% of the price.¹ You and the seller may still see your house differently, so if you think it might be unfit, talk to your lawyer before the settlement date.

If it is unfit, your first choice is to cancel, with a notice your lawyer sends the seller. The seller then has to pay back straight away your deposit, the part of the price you paid upfront, and anything else you’ve paid under the agreement. What you don’t get back is what you’ve spent along the way, like your lawyer’s fees or a building report. Once you cancel, neither of you can claim anything from the other over the sale.¹

The second choice is to go ahead and buy it for less. Under the form, the price comes down by whatever insurance money the seller gets, or is due to get, for the damage.

Why the seller’s insurance matters

If the house is unfit to live in and you still want it, the seller’s insurance money is the only thing that brings the price down. If the seller had no insurance, or their insurer won’t pay for the damage, there’s nothing to take off. Unless the seller agrees to take less, your choice is then between cancelling and paying the full price for a damaged house.¹

The seller’s insurer can also agree to repair the house for you, up to the limit of the seller’s cover. Then nothing comes off the price. Either way, the policy itself stays with the seller, and you don’t have to take it over.¹

Finding the damage in time

Nothing in the form makes the seller tell you about new damage. It only makes them pass on official notices about the property. The way to find out about the roof is to go and look.¹

If the house is sold empty, the form lets you visit once before the settlement date, or send someone you name in writing. The Real Estate Authority’s guide to the agreement describes the visit as a check that the house and chattels are as they were when you signed.³ Go early, because a claim for a lower price has to reach the seller by the last working day before you settle, with an estimate of the loss.¹

If the seller or the agent says they’ll fix something, tell your lawyer anyway, because a promise isn’t a claim. And if the seller agrees to do work, the form lets you go back by the day before settlement to check it’s done.

Check the chattels while you’re there, because they come under a separate promise from the house. On settlement day they should be in reasonable working order, and otherwise as they were when you signed, allowing for fair wear and tear.¹ If the storm has ruined the stove, or something’s missing, tell your lawyer straight away.

The seller’s promise that the chattels work also carries on after you settle. So if one turns out to have been faulty on settlement day, and not just worn or newly broken, tell your lawyer, even if you’ve already moved in.

Agreeing how much comes off

If the seller agrees a figure, it comes off what you pay when you settle. If not, your lawyer has a strict deadline. A written claim, with an estimate of the loss, has to reach the seller by the last working day before the settlement date.¹

Normally you still settle on the day. A reasonable part of the money goes to a neutral holder instead of the seller, in a bank account in both your names. That sum is only a holding figure. What the seller finally owes you can end up higher.¹

If you can’t agree on the size of the held-back sum, an expert you both choose, such as a registered valuer, decides it. You split their cost unless they say otherwise. Their decision sets only the held-back sum, not what you’re finally owed. That way the sale can go ahead on the day, with the money set aside until you and the seller agree the final figure.

There’s one exception to settling on the day. If the expert hasn’t decided by the settlement date, settlement moves to two working days after they do. That only happens if your lawyer first confirms in writing that you’re otherwise ready to settle.¹

The final figure is still for you and the seller to agree. If you can’t, your lawyer can advise on taking it further, and that can carry on after you’ve moved in.

What to do if there’s damage

• Visit early if you can, and tell your lawyer straight away about any damage or anything missing.
• If the damage could make the house unfit to live in, talk to your lawyer before the settlement date.
• Don’t count on the seller’s insurance bringing the price down until you know there is some.
• Have your own insurance in place from the day you get the keys.

Your agreement may be on a different form, or someone may have changed the part about damage, so ask your lawyer which you have.

Other pages that may help

If your agreement still has conditions, our guide to conditions covers how it gets to the point where you’re committed. If the money or the seller is running late on the day, see what happens if you can’t settle on time.

What to ask your lawyer

1. Is my agreement on the standard form, and has the part about damage before settlement been changed?
2. Where is my deposit now, and has it already gone to the seller?
3. If I find damage when I visit before settlement, how soon do you need to hear from me?
4. If something gets damaged after the deadline for claims, say on the morning of settlement, what happens?
5. Is the property zoned rural, so the 20% rule applies?
6. If I'll get the keys on a different day from settlement, who pays if the house is damaged in between?
7. If it's an apartment, whose insurance would pay for damage to the building?

Say these as they are written. They are normal questions to ask.

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