Who insures a property between exchange and completion?
Home insurance is a necessary protection on your property. But do you need home insurance from exchange or completion and who is responsible for it?
So do you need home insurance when you exchange contracts? You need to take out home insurance to cover for any damage from exchange of contracts, as it’s the buyer’s responsibility to insure the property until completion date. Once contracts have been exchange you are legally obliged to complete and the seller is not legally nor contractually obliged to insure the property.
The first question to understand is what it means to exchange contracts in England and Wales.
What is Exchange of Contracts?
In England and Wales, exchanging contracts is the last but one step in a house purchase. Where completion is the final step in the process.
Under English & Welsh law exchange of contracts occurs after your solicitor has carried out all necessary searches. It’s after the mortgage has been arranged where necessary, the surveys are complete if required and there is agreement to the terms of the contract.
Once each party has signed the contracts and they have been exchanged between solicitors on either side, they are binding. For the exchange of contracts to be binding in law, there’s has to be whats referred to as ‘consideration‘.
Consideration in this case will be the ‘exchange deposit‘, which is generally 10% of the purchase price.
Up to the point when you exchange contracts, the house buying process is not legally binding in English and Welsh law. Prior to exchanging contracts, either a buyer or a seller can pull out of the process at any time.
But in England and Wales, once both parties have signed and exchanged contracts, it is extremely difficult for either party to back out of the agreement.
Do you currently have home insurance?
The second question to ask: Do you currently have home insurance on your present home? If you don’t, then you should. But also on your new home, you should insure on the day of exchange.
If you’re worried about the risk of having to cover the cost of repairs if something were to go wrong, how are you going to pay for the damage if you don’t have insurance. For example a house fire.
Don’t rely on the fact that the sellers have insurance or will be around to repair the damage. As the seller is not legally obliged to insure once contracts are exchanged, they may cancel their own policy. Or even if the seller has insurance, there’s no guarantee their insurance will be adequate to cover the cost of any repairs to damage.
Who is responsible for house insurance between exchange and completion?
It’s the buyer who’s responsible for house insurance between exchange and completion, unless the contract states otherwise. Your solicitor should advise you to take insurance cover from exchange of contracts.
When you do make sure to tell the insurance company the cover includes the period between exchange and completion when the seller is still living in the house. If you don’t you may find you’re not covered. Note that not all insurance companies will insure this risk.
But who’s responsible for house insurance between exchange and completion isn’t as important as making sure you are covered. I’d rather have insurance in place after exchange than not, and let the insurance companies work this out between them if something goes wrong.
If you currently have home insurance, then you accept that insuring your home is important.
If you also understand that once contracts have exchanged, you take legal responsibility for your new property. You should therefore make sure you arrange for home insurance to begin on the day of exchange.
The person responsible for any major damaged caused by flood, storm or fire will be down to what’s in the Sales Contract. But if you’re in any doubt, ask your solicitor for advice.
Should a seller cancel insurance when contracts are exchanged?
A seller should not cancel their homeowners insurance when contracts are exchanged, but should leave cover in place.
This is to have insurance cover for any damaged that might happen if the buyer fails to take out insurance. Or if they make a mistake on their application, or they are not covered for any other reason.
For example, a common error is to not tell the insurance company they are not actually living in the property, but the seller is. Not all insurance companies provide exchange to completion insurance cover.
When should seller cancel homeowners insurance?
A seller should only cancel their homeowners insurance once contracts have completed as you can’t assume the buyer has got cover in place.
This is because even though the buyer is obliged to complete once contracts are exchanged, if completion doesn’t happen your insurance is to cover if something goes wrong.
What insurance cover is needed after exchange of contracts?
You will need to take out an insurance policy that offers cover from the date of exchange on your new home. In order to be fully protected, you need a policy that has buildings cover as a minimum.
However, you may also be advised to get insurance cover for contents too. This is because things like carpets and curtains tend to come under contents cover in the event of damage. But speak with an insurance broker to make sure the cover you get is right.
You need insurance to cover for things like fire, flood, storm damage, subsidence, fallen trees and burst pipes. It’s possible that between exchange and completion something could happen.
The present owners are legally obliged to leave their home in good condition. Or certainly in the condition it was on exchange of contracts.
If anything is deliberately damaged by them, the sellers are responsible for the repairs.
Is buildings insurance a legal requirement?
Buildings insurance isn’t a legal requirement, but your lender will normally insist you have cover in place before they will advance any money.
But even if you are buying a house without a mortgage, unless you can afford the cost of a major disaster, you are better to insure the building.
I hope this article has helped on do you need home insurance from exchange or completion
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