The importance of buildings insurance after exchanging contracts
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In today’s article, we look at what buildings insurance is. Great, you have instructed your conveyancing solicitor in London. They have carried out all of the legal work for the property you are buying. They are now ready to exchange contracts and have asked for your buildings insurance cover to be put in place. So what does buildings insurance mean?
Buildings insurance covers any damage to the structure of a property, and sometimes damage to outdoor buildings such as greenhouses, shed, or garages. The damage could be caused by fire, theft, vandalism, frozen pipes and more. The responsibility for insuring the property between exchange and completion is unclear, however, the seller’s buildings insurance is unlikely to cover a purchaser after contracts have been exchanged. This is the part of the conveyancing process when the sale becomes legally binding.
Sometimes, exchange and completion happen at the same time, although there is more often a gap of a week or two in practice while the funds for the purchase are drawn down and other practicalities are ironed out.
What happens if I don’t arrange insurance before exchange?
Clause 5.1.1 of the Standard Conditions of Sale, which is the most common contract of sale used by conveyancers, states that:
“…the responsibility for the insurance of the property is passed to the buyer with effect from the moment contracts are exchanged.”
In any event, if you are taking out a mortgage on your new home, your mortgage provider will require you have sufficient building insurance in place at the point of exchange. If you do not have buildings insurance and something happens to the house between exchange and completion, the lender’s interest is not protected.
What about leasehold property?
If you are buying a leasehold property, the landlord will usually provide the buildings insurance until completion, then the buyer will reimburse the landlord. Your solicitor will check the lease and confirm whether building insurance is covered by the landlord until completion and advise you if not.
There can be a situation with new-build properties where the period between exchange and completion can be months, and sometimes years. In this case, the seller will usually be responsible for building insurance until completion. Your conveyancing solicitor should read the contract carefully to ensure this is the case. If it is not mentioned in the contract, you may be responsible.
Will any buildings insurance do?
In short, no. Comparison sites do not ordinarily cater for or make it clear, that the chosen policy may not cover the period between exchange and completion. Most buyers simply buy buildings insurance in haste, failing to read the small print, and when something happens, find they are not covered. You should ask your conveyancing solicitor if they know of any suitable policies before exchanging contracts. Alternatively, there are many specialist products on the market that cater specifically for this type of insurance, “Exchange2completion” is just one of a number of companies that offer this type of insurance.