Why do I have to insure the property I am buying before completion?

Most residential sale and purchase contracts in England and Wales incorporate The Standard Conditions of Sale (Fifth Edition).

Condition 5.1.1 of the Standard Conditions provides that the property is at the risk of the Buyer from the date of the Contract. (The point of exchange).

Condition 5.1.2 provides that the Seller is under no obligation to the Buyer to insure the property (unless the contract specifically requires the Seller to do so or, the Seller is required to insure under the terms of any letting or leasehold agreement affecting the property).

If the property is leasehold and the Landlord is required to insure the property under the terms of the lease, we would expect to see a copy of the buildings insurance policy schedule before exchange of contracts.

If you are buying the property with mortgage finance, your mortgage lender will set out their specific requirements in respect of insurance. The mortgage offer may, for example, reflect the minimum level of cover required for the property and state that the excess payment on any claim for subsidence, should not exceed £1,000.

If you are buying a newbuild property, The Standard Conditions of Sale may be varied to reflect that the Seller will retain the risk until Completion.

Although the risk passes to the Buyer under Condition 5.1.1 at the point of exchange, a Seller is unlikely to cancel insurance on a property until completion has taken place.

If the property is damaged or destroyed between exchange of contracts and completion, and the amount paid to a Buyer under their insurance policy is reduced because the property is also insured by the Seller, then in accordance with Condition 5.1.5, unless the Seller was required to insure the property in accordance with Condition 5.1.1 referred to above, the purchase price payable by the Buyer would be abated by the amount of such reduction by the insurance company when settling a claim.

We would recommend that you obtain quotes for buildings insurance cover prior to exchange of contracts so that you are able to arrange for the insurance cover to start immediately before exchange of contracts.