The time to take out buildings insurance on a property during the purchase conveyancing process will depend on a few factors, e.g. whether the property is freehold or leasehold.
It will also depend on the terms of the contract as to who is responsible for the property from exchange of contracts.
Common Law Position
At common law and unless the contract provides, the risk in the property passes to the buyer from exchange of contracts. The buyer is therefore responsible for any damage to the property from exchange of contracts unless it can be proved that the damage came about as a result of a lack of proper care on the part of the seller.
It is therefore advisable, and most Conveyancing Solicitors will advise in this way, for the buyer to insure the property from exchange of contracts.
Standard condition 5. 1 of the contract states that the seller bears the risk until completion and if the property is substantially damaged it provides for the right for the contract to be rescinded (it will therefore come to an end). Often, when drafting the contract, conveyancers will insert a special condition to vary this standard condition so that the risk passes to the buyer from exchange.
It is very important that insurance is taken out at the point when the risk passes to the buyer and your conveyancer should review the contract carefully to ascertain exactly when that it.
Buying with a Mortgage
If the buyer is buying with the assistance of a mortgage, the mortgage lender will set out their requirements regarding insurance cover. Many lenders will provide insurance cover if requested to do so. Some lenders will provide a discount on the buildings insurance policy for the first few months if taking out a mortgage with them.
Property at Seller’s risk and New Builds
In some cases the risk will remain with the seller until the matter has completed. This is often the case where the property is a new build. If this is the case, the buyer should ask to see a copy of the policy and the conveyancer should request evidence that premiums have been paid and insurance will remain in place until the purchase completes. Also, the buyer’s conveyancer should obtain written confirmation that the buyer’s interest has been noted on the policy.
Where the property is in the process of construction (i.e. is being built) the buyer’s conveyancer should obtain clarification as to whether ‘completion’ means when the building is complete or when the purchase actually completes since they are two very different things.
Terms of the Policy
The terms of the policy should be checked carefully so as to ensure that:
- The level of cover is adequate
- The sum insured is index linked
- The risks that are insured against are adequate, e.g. fire, flooding (where appropriate)
- If there any special features about the property then these should be included within the policy
- Where the property is a flat within a larger building or is attached to adjoining property the policy would cover damage to neighbouring properties where possible
The buyer should be advised of any risks that are excluded since if any damage is caused as a result of uninsured risks the buyer may be liable for the repair costs.
With leasehold properties it is almost always the case that the landlord is responsible for insuring the property. The buyer should request a copy of the buildings insurance policy to ensure that it adequately protects the property and that the amount it is insured for is sufficient. The policy must be checked against the lender’s requirements if a lender is involved.
The buyer’s interest or his lender’s interest must be noted on the policy on completion and the buyer’s conveyancer should put this request in writing. Managing Agents of a property usually deal with such matters. Note that the owner makes a contribution towards the costs of the insurance policy through service charge payments.
The buyer should take out a contents insurance policy from completion, once their belongings are at the property.