2011 change to house buying contracts passing risk to buyer. Why?

uknick

In 2011 the rules governing house sales changed to say the buyer takes all the building risk after exchange. This means the buyer still has to complete even if the house burns down between exchange and completion. Yes, I know you would buy insurance to cover the risk, but I'm not sure I would be happy having just spent all my life savings on a new home and then be told you have no choice but to buy a pile of charred remains. Or, in the case of the linked article, an inhabitable home due to a water leak.

Why were the rules changed in 2011 to pass the risk to the buyer from the seller? Can someone please point out what I am missing?

You’ve bought a new house. But what if it gets wrecked before you move in? | Home insurance | The Guardian

lincroft1710

Can you give a link to the 2011 legislation?

uknick

https://forums.moneysavingexpert.com/discussion/comment/81920362#Comment_81920362

No, I couldn't find one other than this from the standard contract of sale;

STANDARD CONDITIONS OF SALE (FIFTH EDITION - 2018 REVISION)
(NATIONAL CONDITIONS OF SALE 25TH EDITION, LAW SOCIETY'S CONDITIONS OF SALE 2011)

1. 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.

p00hsticks

I'm not convinced it was changed in 2011 - I seem to recall having to take out buildings insurance from exchange when I bought my first house in the mid-1980;s.

The point is that when you exchange you are legally committed to make the purchase on the agreed completion date.

uknick

https://forums.moneysavingexpert.com/discussion/comment/81920362#Comment_81920362

Sorry, I just realised what you're saying; where is it in government legislation? I don't think it is, the story cites the national conditions of sale as for conveyancing as drawn up by the Law Society

uknick

https://forums.moneysavingexpert.com/discussion/comment/81920523#Comment_81920523

The New Standard Conditions of Sale 5th Edition: - Sloan Plumb Wood Solicitors

indicates the change happened in 2011.

I don't recall buying insurance before completion in 1994 when I last bought a second hand home. But, there again, I have problems remembering 30 days ago, let alone 30 years. My current home bought in 1998 was brand new and it was not an issue with builder takes the risk until completion with a new build.

.

eddddy

Conveyancers / solicitors almost always use the "Standard Conditions of Sale" as the basis of the contracts for selling/buying a house. And…

• The 4th Edition of the "Standard Conditions of Sale" said that the seller was responsible for insuring between exchange and completion
• The 5th Edition of the "Standard Conditions of Sale" says that the buyer was responsible for insuring between exchange and completion

The 5th Edition was launched in 2011 - but it's possible that some conveyancers didn't start using the 5th Edition straight away.

p00hsticks said

I'm not convinced it was changed in 2011 - I seem to recall having to take out buildings insurance from exchange when I bought my first house in the mid-1980;s.

Sellers and buyers can agree to modify the terms stated in the "Standard Conditions of Sale".

So, for example, in the 1980s, your seller might have asked that the contract be modified to make the buyer responsible for insurance - and you agreed (or your solicitor agreed on your behalf).

In fact, it seems that a key reason for changing the that clause in the 5th edition in 2011 was that solicitors were frequently modifying the 4th edition clause anyway.

uknick

https://forums.moneysavingexpert.com/discussion/comment/81921020#Comment_81921020

edddy said;

"In fact, it seems that a key reason for changing the that clause in the 5th edition in 2011 was that solicitors were frequently modifying the 4th edition clause anyway."

Funny you should say that as I recently asked a seller to add a clause to the contract agreeing to retain risk until completion and they flat out refused.

peterhjohnson

I'm quite sure when I bought my first house in 1979, my Building Society and Solicitor insisted I had to insure from the date of Exchange and I assumed it's always been so!

uknick

https://forums.moneysavingexpert.com/discussion/comment/81922381#Comment_81922381

It may well have been best practise for the buyer to insure the house upon exchange prior to 2011. However, the legal risk was with the seller if the house fell down as the buyer could just walk away after exchange with no penalty.

It is now part of the legal requirements to complete regardless of the state of the house, unless you ask for the standard contract to be changed.

GDB2222

https://forums.moneysavingexpert.com/discussion/comment/81922766#Comment_81922766

I don’t think that’s accurate. The contract has always required the buyer to complete regardless of whether the house burns down before completion. The difference was that, previously, the seller was obliged to insure the property and hand the claim over to the buyer. Now the buyer is obliged to insure the property themselves.

Depending upon the circumstances of the fire, the situation is likely to be fraught whoever is responsible for insurance. For example, the seller might do something that invalidates the buyer’s insurance. The buyer would thus simply not have the funds to complete and becomes bankrupt….

It’s usually a short period between exchange and completion, and it is sensible for both parties to insure the property for this time.