Why does the buyer become responsible for buildings insurance on exchange?

SG27

We had some issues with our buildings insurance not starting on exchange when it was suppose to. It's sorted now and started a couple of days late. But it just made me wonder why I am now responsible for insuring a building I dont yet fully own and have no access too? Wouldn't it be simpler if insurance started on completion rather than having the confusion of who is actually responsible between exchange and competition. Who would make a claim if the house was damaged now, us or the vendor?

go_cat

Once you have exchanged by law you are committed to buy.therefore you and your mortgage company have an interest in the property. If anything happened o it e.g fire flood etc you would still be liable to complete your insurance is to protect that interest

ijrwe

go_cat wrote: »

Once you have exchanged by law you are committed to buy.therefore you and your mortgage company have an interest in the property. If anything happened o it e.g fire flood etc you would still be liable to complete your insurance is to protect that interest

The same all applies to the vendor, though, doesn't it? They would still have to complete and provide the buyer with what they're paying for, so should the vendor be compelled to take out insurance (if they didn't already have it), at least during that period?

SG27

ijrwe wrote: »

The same all applies to the vendor, though, doesn't it? They would still have to complete and provide the buyer with what they're paying for, so should the vendor be compelled to take out insurance (if they didn't already have it), at least during that period?

And then if this is the case there would be two policies running on the same house and don't they say that there can't be two? I assume the vendors insurance stops on exchange?

kingstreet

It depends on the contract used. Some had the purchaser accept liability from exchange, some the vendor.

I think it depends on which contract the solicitor uses. If RW sees this, he'll clarify it.

ValHaller

SG27 wrote: »

And then if this is the case there would be two policies running on the same house and don't they say that there can't be two? I assume the vendors insurance stops on exchange?

First of all, there is no guarantee that the vendor has insurance. So it is cheaper to just insure for the period between exchange and completion than to raise queries and, er, insure for the residual risk that the vendor has no insurance.

Secondly, there is no great reason not to have 2 policies in force, insuring 2 different parties against risks which are slightly different. The vendors insurance will cover the vendor for loss arising not having a property they can sell and for alternative accommodation for themselves. The buyer's insurance covers the buyer for the loss arising from being forced to buy an unsaleable property and for buyer's alternative accommodation.

The only issue with 2 policies is that they will not pay out for the same risk twice, otherwise it would be profitable to over insure and suffer a loss.

kingstreet

More here;-

https://forums.moneysavingexpert.com/discussion/comment/53748581#Comment_53748581

clockworks_2

My solicitor arranged for the vendor to have responsibility for building insurance up until completion.

mysterywoman10

It's a very grey area isn't it? You think they would have sorted this by now?

I'm sure years ago there used to be some kind of "insurance on the depsit at exchange"? Or have I imagined this?

The problem also is if you are buying and selling and the property you were going to buy was damaged, giving you grounds to pull out you would still be oblidged to go ahead with your sale. Thereby leaving you homeless.

I'm surprised an Insurance company hasn't come up with a specific policy to cover this between exchange and completion. Also most people have combined Buildings & Contents, so how would that work if the vendor's contents were totally destroyed they would be claiming off a different policy?

This link gives a good insight into recent case law and the best thing to do.

http://www.shlegal.com/knowledge/publications/06_10_The_perils_of_double_insurance_in_a_property_transaction

Flat_Eric

Most Mortgage Companies want evidence that the property has been insured (from exchange of contracts) before they will release the mortgage monies.

Does seem daft ... to be honest but one of those quirky house buying things I guess.

Richard_Webster

Ok, the present 5th Edition of the Standard Conditions of Sale says that the risk passes to the buyer on exchange of contracts so that even if the place burns down between exchange and completion the buyer still has to complete and claim on his insurance. Basically, this (with some slight modifications) restates the common law position that would apply if there were no detailed contract wording to refer to.

Some solicitors are still using the 4th edition wording which in my view was unsatisfactory if a seller was also buying because, whilst it didn't oblige a seller to continue to insure, it gave a buyer a get out sp that he could rescind the contract if the property was substantially damaged between exchange and completion.

If you were also buying this would mean that you could end up not being able to complete your purchase because you couldn't get out of that contract, but your buyer could get out of the contract with you.