Property Damage from Natural Disasters Prior to Closing

In most states, if your contract does not specify who bears the risk of damage to the property from disasters like fire, hail, flood, or wind, the risk of loss is on the seller. In other words, if the building is damaged by fire before the closing, the buyer can cancel the purchase unless the seller restores the building to its prior condition. However, you and the seller can tailor the contract to contain a risk of loss provision which meets both your needs and wishes. Then, if there is a later legal dispute, a judge or arbitrator will make every effort to carry out the intentions of the parties as stated in the contract.

Case Studies: Property Damage Prior to Closing

Case Study 1: The Unexpected Fire

John and Sarah had entered into a contractual agreement to purchase a property. However, just before the closing date, an unforeseen fire broke out, causing substantial damage to the property. John, wanting to withdraw from the purchase, discovered that the contract did not include any provisions the risk of loss. Consequently, Sarah is responsible for the restoration of the property for the sale to proceed.

Case Study 2: The Devastating Flood

In the case of Mark and Sarah, they had come to an agreement to acquire a property known to be prone to flooding. Unfortunately, before the closing took place, a severe flood occurred, resulting in significant damage to the property. The terms of the contract explicitly assigned the risk to Mark, leaving him with the obligation to proceed with the purchase despite the property’s compromised state.

Case Study 3: The Destructive Windstorm

John and Sarah took the initiative to customize their contract by incorporating a risk of loss provision. When a powerful windstorm struck the property before the closing, the provision stipulated that Sarah was obligated to restore the property. This provision played a crucial role in enabling John to move forward with the purchase, as he could proceed with confidence, knowing that the property would be restored.