Property Insurance between exchange and completion of contracts

When you are buying and selling a property it is essential that you understand the insurance implications during this process. Failure to do so could result in serious financial consequences in the event of a disaster such as a fire, theft, flood being uninsured. The insurance between exchange and completion of contracts is one which is misunderstood and in our experience, even professionals in the conveyancing sector have occasionally shown a lack of knowledge in this area. The release of the Law Society Standard Conditions of Sale (5th Edition) in 2011 should have led to a fairly standard procedure which everyone can understand.






So what is the problem?

When an agreement is made to buy and sell a property, both the purchaser and the vendor have legal obligations under the contract of sale. The vendor is obliged to sell the property the current condition along with the specified fixtures and fittings as defined by the contract of sale. Equally, the purchaser is obliged to buy the property in its current condition along with the fixtures and fittings as defined by the contract. This all sounds pretty simple, but the big question is at what point does the obligation to insure the property transfer from the vendor to the new owner?

The wording of the Law Society Standard Conditions of Sale (5th Edition) has cleared up any misunderstanding and provides the following wording;-

“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 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 a landlord or as a tenant) is obliged to insure against loss or damage”

So, as long as this is the contract wording that is used, the liability to insure the property is firmly placed with the purchaser with effect from effect from exchange of contracts.

So can the vendor cancel the buildings insurance policy once contracts have been exchanged?

Although the obligation to insure under the contract of sale has been passed to the purchaser, we do not feel that the vendor should cancel the buildings insurance policy for the following reasons;-

The purchaser may fail to insure the property correctly or adequately, what would happen if the property was destroyed?

It is all very well to state that the buyer has an obligation and the seller could take legal action against him to complete on the contract of sale. But if the buyer is relying on a mortgage provider to finance the purchase it is unlikely his lender will approve finance on a property that has been damaged and there is no provision for repair of the property. This could leave the vendor with no money, nowhere to live and with the house he was selling in a wretched state of disrepair!

Fortunately most home insurance contracts have an additional provision to pass the benefit payable under the policy to the buyer of the property if the damage occurs between exchange and completion. This clause is withdrawn automatically however if the purchaser of the property has already arranged cover in their own right.

The fact that a vendor has retained his current policy is accommodated in the Standard Conditions of Sale which states that:

“5.1.5 If a payment under a policy effected by or for the buyer is reduced, because the property is covered against loss or damage by an insurance policy effected by or on behalf of the seller, then, unless the seller is obliged to insure the property under condition 5.1.2, the purchase price is to be abated by the amount of that reduction”


If you are selling – Don’t cancel your insurance policy until completion of contracts even if you have been advised that the buyer has already insured it. His policy may be inadequate or he may not have disclosed all the facts about either the property, himself or his claims history which could invalidate his insurance. There are many ways in which a claim could be avoided by an insurer so don’t rely and trust a person unknown to you to arrange insurance for what is effectively, your property.



If you are buying – You should be looking to start your insurance policy for the property you are buying upon exchange of contracts. This is your obligation under the Standard Conditions of Sale (5th Edition). The only exceptions are if a different or an amended contract wording is being used. A good example of this would be if you are buying the property from a new house builder where a different contract would likely be used.

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