Exchange to Completion – Who Insures?
At common law, the risk in the property passes to the buyer once contracts have been exchanged, unless the contract provides otherwise.
The common law position is reflected in the Standard Conditions of Sale (Fifth Edition) and the recent Standard Commercial Property Conditions (Third Edition), both of which provide that the property is at risk of the buyer from exchange of contracts.
The contract will usually oblige a buyer to complete, even where the property is damaged or even destroyed between exchange and completion.
A buyer should therefore normally insure premises between exchange of contracts and completion, though in some instances it will be suitable for the premises to remain at the seller’s risk until the transaction completes (such as where the contract is conditional or the seller is obliged to insure pursuant to an obligation under a lease of the premises).
In any event, a prudent seller will usually continue to insure the premises during this period. A failure to keep the premises in suitable cover may comprise a breach of the seller’s mortgage terms or leave the seller liable to reinstatement costs in circumstances where the buyer is not in a position to complete and the property is damaged or destroyed prior to completion.
Where both parties are insuring the premises, issues of dual insurance may arise. Both sets of Standard Conditions provide for a reduction in the purchase price in circumstances where insurance proceeds payable on a claim by the buyer are reduced owing to the existence of the seller’s policy.
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