Who Bears Risk of Loss in a Natural Disaster

The answer is it depends. The doctrine of equitable conversion has been well established in Virginia case law and applies the maxim that “equity treats that as done which ought to be done.” In other words, when a buyer and seller of real estate have executed and signed the sales contract, the buyer’s interest is called equitable title. The seller holds the property in trust for the buyer until final closing and the deed has been recorded.
This means that the risk of loss of damage to the property before closing and before recording, falls on the purchaser unless otherwise agreed to in a written agreement. Most sales contracts in Virginia provide that the seller bears the risk of loss with an option to cancel the contract if destruction to the property occurs.
So what happens in the event a natural disaster strikes? Like the tornado that devastated Appomattox, Virginia on February 24, 2016. Under the doctrine of equitable conversion as explained above, the buyer will bear any loss on the property due to destruction or damage until the deed has been recorded and title has been passed to the buyer unless a purchase agreement states otherwise. This is why it is extremely important for purchase agreements to include a risk of loss provision and an option to walk away from the contract should the property be damaged or completely destroyed.
Should a party seek specific performance of the contract even in the event of damage or complete destruction, the courts have decided that specific performance will not be granted where circumstances and conditions of things have been so changed as to work loss and hardship on the party of whom specific performance is sought to be enforced.
The bottom line: make sure a real estate attorney has reviewed the purchase agreement before buyer and seller sign, so as to ensure all necessary provisions are included to protect both parties from unforeseen disaster.
Our office is committed to providing excellent client service as we uphold high professional standards and we seek long term relationships over occasional transactions. Our team strives to meet any challenges presented in the complex navigation of real estate transactions from beginning to end. We look forward to earning your business.

Editors Note: The office of Fairchild & Yoder, PLLC offers its sincere condolences to the families and the community of Appomattox for their loss.