Luxury river front property for sale - flooded only once (or twice)

Meanwhile, a four-year-old, three-level Chelmer home not far from Tennyson Reach was one of many other Queensland properties which flooded in December 2010 and January 2011 while under contract. With few exceptions, contracts on those properties were cancelled and sales crashed. Invariably finance was declined, or Section 64 of the Property Law Act was invoked without objection.

With the downstairs family-room at this Chelmer home having been completely submerged and wrecked, and a metre of water having laid waste to much of the second floor level, the owner/seller found herself - like many others - without flood insurance. But her buyers were finance-approved. Settlement of her now unconditional contract was due in February – only weeks after the muddy waters would recede to reveal the extensive devastation caused to the house, pool and yard. The property's pontoon had already joined a flotilla of others in Moreton Bay.

Her buyers, a professional couple from New south Wales, knew nothing about Brisbane's 1974 floods and consequently had made no flood enquiries before committing to this $3 million-plus property on the beautiful and (then) benign-looking Brisbane River. Although their solicitor had reviewed the contract before signing, he added no protective flood clause, undertook no subsequent flood search for his trusting clients and (like the seller and agent) volunteered nothing about the flooding which had undoubtedly occurred over at least part of the block in 1974. Nor was there any seller/agent disclosure about the likelihood of future river flooding. (No matter that 12 months earlier the then Queensland Government Fair Trading Minister, Peter Lawlor, informed me that the Bligh Labor government had no intention of legislating to make such flood disclosure compulsory in residential property sales.)

By the way, was it karma that the buyers' solicitor's own office would also soon be flooded? As would the home of Queensland Premier Anna Bligh's own mother!

It was clearly karma that, two days before the Brisbane River raged, the buyers took out belated but still timely flood insurance –prompted by prolonged wet weather and a standard contract clause providing that the property was at their risk, as it had since they signed up two months earlier.

The obviously distraught buyers met with the seller (and her non-practising lawyer husband) to view the soggy state of the property and to discuss what to do. The buyers were taken aback when the seller, apparently encouraged by her understanding of the risk clause, said she intended to do nothing. Rather the buyers, it was calmly suggested, should complete the purchase then simply make a claim on their insurance.

With their solicitor's office still closed from the floods, the buyers needed speedy legal advice on their predicament and contacted me. Could they cancel because of the flood damage despite the risk clause, and/or because of what their post-flood investigations had revealed?

After giving this anxious couple some encouraging preliminary advices I quickly secured a barrister's opinion on two issues. Firstly, could my clients cancel because of the seller's and her agent's misrepresentation (by silence) about flooding, and/or by their deceptive mis-description of a storeroom as the property's suitably-appointed "family room"? (The room in question showed in the Brisbane City Council's approved dwelling plans only as "storage" – a designation relevant for the Council's 1974 flood-height requirements for habitable room floor levels of new homes.) Secondly, was Section 64 of the Property Law Act applicable to this property and sale contract?

The barrister was cautiously confident on both issues, but felt (as Mirvac's lawyers and a Supreme Court judge later would) that Section 64 might not be as clear in meaning as it appeared. If the seller disputed any rescission by the buyers, as her solicitor had already foreshadowed she might, a costly court battle was likely to ensue. And, depending on the result, later damages suits might be necessary against a negligent solicitor and/or misleading agent.

My clients nevertheless wanted to buy a home, not a precedent-creating court case or three. (At this time Mrs Dunworth's rescission had not occurred, nor had her legal proceedings commenced.) While acknowledging the value of the legal advice they had received, my clients remained uncomfortable about future flooding, unhappy about the family/storage room situation but still rather liked the idea of river-front living. So they resolved they should settle the contract and make their insurance claim afterwards – provided that the price could be renegotiated down and more time allowed to enable the completion of their presently on-hold finance arrangements,

I then formally indicated by fax to the seller's solicitor that my clients were considering terminating the contract for misrepresentation (and under Section 64), but proposed a "without prejudice" conference between the parties to explore other possibilities.

An amicable meeting followed (without lawyers present apart from the seller's husband) where my clients made it clear they had obtained some high-powered legal advice, but gave away nothing about the Section 64 reservations. Anyhow, common sense prevailed and a deal was done: the price would be substantially reduced (by $150,000) and the completion date extended by two weeks. The sale settled satisfactorily and the buyers' insurance claim proceeded surprisingly smoothly.

Apart from the not-unexpected post-settlement hassles of locating, engaging and dealing with trades-people, the buyers were happier but much wiser. The seller was probably pretty happy too.

The latest good news from my clients is that they recently obtained a valuation of their reinstated property (but with landscaping still incomplete and the pontoon yet-to-be-replaced). The valuation came in at only 3% less than their reduced purchase price!