One of the most frequent questions asked in conveyancing is when should a person stop insuring the house they are selling and start insuring the property that they are buying.

The answer to that question depends upon the contract for your purchase and sale. Because different solicitors take a different view there is little consistency, but the following guidelines may help.

The General Conditions of Sale

The contract (which is prepared by the seller) provides that the state of the property is the seller’s responsibility until the day of completion. If the property was destroyed or substantially damaged between exchange of contracts and completion, then it is the seller who must carry out the repairs.

The property remains at the seller’s risk until completion and the seller must hand it over in its present condition, except for fair wear and tear. A buyer would be entitled to withdraw from the transaction, with the return of their deposit, if the property was so badly damaged before the completion date as to make it unusable, and the seller would have a similar right if the damage was caused by a risk against which they could not have been expected to insure.

Unfortunately, this does not oblige the seller to insure the property – the seller may simply cancel the policy and take the risk that there will be no damage. If the seller is proved wrong and the property is destroyed it is little consolation to the buyer, looking at the ruins of their potential home, that the seller should rebuild it; if the seller has neither insurance or money the seller will be in no position to do so and the buyers will have lost their new house before they even completed their purchase!

A buyer of a property should always obtain confirmation from the seller that they will keep the property insured until completion. If a buyer is having a Bank or Building Society mortgage, then an enquiry could be made of them – they sometimes insure their borrower’s new house from the date that contracts are exchanged.

The contract also contains a potentially dangerous clause stating that if a property is destroyed or it becomes unusable then the buyer can decide not to proceed. If a person is both buying and selling a property, he/she may therefore find himself/herself in the uncomfortable situation of the buyer turning round and saying that he/she does not want to proceed – but this still leaves the buyer bound to complete the new purchase. He/she is then the owner of two properties and if he/she was relying on his/her proceeds of sale to complete his/her purchase then he/she may have severe financial difficulties! On the other hand, if the property you are buying is destroyed, you may back out of the purchase but are still obliged to proceed with your sale, in which case you will be homeless!

If you are a buyer

1. Make sure that the seller agrees to keep the property insured until the day of completion.
2. Ask your lender (if there is one) whether the property is automatically insured from the date of exchange.
3. Ask your solicitor what the situation is in your particular case.
4. Arrange your own insurance from the date of exchange of contracts, not completion.

If you are a seller

1. The contract that we prepare takes away the right of the buyer to back out of the contract if the property you are selling should be destroyed and the buyer in such a case would still have to proceed. This clause, however, is not accepted by all solicitors, and some insist on its removal. In such a case, the General Conditions of Sale as explained above apply.
2. Maintain your insurance policy up to the date of completion

How can we help?

By working with us, you can have peace of mind that your legal requirements are met, and your rights are protected.