Buyers liability between exchange and completion

da_rule

We didn't have to have insurance on the new build we purchased as it was covered by the developers policy. It's one of the rare exceptions to the general rule, but still worth checking.

If your buyers solicitor is worth his salt then he would have insisted they have insurance (if they are buying with a mortgage). There are some occasions where solicitors have actually asked for the proof of insurance before allowing exchange to happen (as the buyers would be in breach of the mortgage terms if it was not in place).

Also, the NHBC will refund your deposit if your developer for a new build property goes bust.

davidmcn

da_rule wrote: »

So you'd need to claim on the insurance policy you have in place from exchange in order to come up with the rebuild costs. That's why mortgage companies insist you have insurance in place at exchange rather than completion.

From the CML Handbook:

6.14.1 You must make reasonable enquiries to satisfy yourself that buildings insurance has been arranged for the property from no later than completion.

Not aware of any lenders who care what insurance you have prior to completion. But also, are you quite sure that the lender will hand over the loan funds if their security is a pile of rubble?

Tax_Slave

da_rule wrote: »

We didn't have to have insurance on the new build we purchased as it was covered by the developers policy. It's one of the rare exceptions to the general rule, but still worth checking.

If your buyers solicitor is worth his salt then he would have insisted they have insurance (if they are buying with a mortgage). There are some occasions where solicitors have actually asked for the proof of insurance before allowing exchange to happen (as the buyers would be in breach of the mortgage terms if it was not in place).

Also, the NHBC will refund your deposit if your developer for a new build property goes bust.

So glad I read this thread. Things change and obviously I didn't know about the new rules.
We will be a cash buyer on new build and I will check with my solicitor prior to exchange this week. For the sake of starting the insurance policy a few weeks early , it will only be a few quid.
Thanks

Tax_Slave

Not saying that I will do this. No way .....
But in theory now our buyers are insuring our building (house), I could cancel our building insurance

da_rule

davidmcn you are quite right. I have even managed to contradict myself with what I was saying in a previous post about Chancel Insurance, it must have been a long weekend!

Obviously most mortgage companies would pull out of the deal, which is why insurance is even more important, as not only would the buyer need to pay to rebuild the property they would also need to pay the seller. Therefore having the insurance in place at exchange is purely to protect the buyer.

da_rule

Tax_Slave wrote: »

Not saying that I will do this. No way .....
But in theory now our buyers are insuring our building (house), I could cancel our building insurance

You could yes, the standard conditions state that you are under no obligation to insure against risk from the point of exchange. Check first though as the standard conditions can be amended/edited.

davidmcn

Tax_Slave wrote: »

But in theory now our buyers are insuring our building (house), I could cancel our building insurance

The contract doesn't guarantee that your buyers are actually insuring, or that the transaction will complete...you could still end up with a smouldering ruin and nothing other than the deposit from your buyers.

eddddy

Tax_Slave wrote: »

Not saying that I will do this. No way .....
But in theory now our buyers are insuring our building (house), I could cancel our building insurance

Solicitors generally recommend that you continue insuring - even though contractually you don't have to.

The risk being...

• The house burns down
• Your buyer's insurance turns out to be inadequate
• Your buyer's lender will not release mortgage funds for a pile of ashes
• So the buyer has no funds to complete
• So the buyer breaches the contract

You could sue the buyer for £500k (the house's value) for breach of contract - and you'd probably win.

But many buyers won't have £500k in assets, so they'll just go bankrupt - leaving you massively out of pocket.

So perhaps it's safer to coninue insuring - just in case!

3mph

Which is why I felt that as a buyer I would prefer the period between exchange and completion to be as short as possible.

G_M

The 5th edition appears to have been introduced in 2011. Previously as kingstreet said, the previous (4th) edition left liability with the seller.

5th edition says:

http://www.lawsociety.org.uk/support-services/advice/articles/standard-conditions-of-sale/

5. RISK, INSURANCE AND OCCUPATION PENDING COMPLETION
5.1.1 The property is at the risk of the buyer from the date of the contract
5.1.2 The seller is under no obligation to the buyer to insure the property unless:
(a) the contract provides that a policy effected by or for the seller and insuring the
property or any part of it against liability for loss or damage is to continue in force, or
(b) the property or any part of it is let on terms under which the seller (whether as
landlord or as tenant) is obliged to insure against loss or damage.

Not that many buyers actually read the contract before they sign.........