Why buyers need buildings insurance at exchange of contracts

Updated: October 30, 2018

As a buyer, failure to arrange buildings insurance on the property you are buying at the point of exchange could be disastrous.

Burned down house

What is buildings insurance?

Buildings insurance (not to be confused with contents insurance) covers: 

  • Damage to the structure of a property, and sometimes damage to outdoor structures such as sheds or greenhouses, fences and gates. 
  • This damage could be caused by theft, fire, frozen pipes, vandalism and more. 
  • It also covers elements such as fitted kitchens, doors, windows and bathroom suites.
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When does the buildings insurance become the buyer’s responsibility?

There is a grey area between exchanging contracts and completion.

The seller’s buildings insurance will be unlikely to cover you. It is your responsibility as the buyer to ensure the insurance is in place on the property at the point of exchange.

Depending on yours and the vendor’s circumstances, you may exchange and complete at the same time.  More often however, there is a gap of a week or two while necessary funds are drawn down and practicalities are ironed out before everyone moves house.

Within this unspecified period, the buildings insurance is your responsibility.

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What if I don't arrange insurance at the point of exchange?

The 'Standard Conditions of Sale (5th Edition)' is the most common contract of sale used by conveyancing solicitors.

Clause 5.1.1 states that: states that responsibility for the insurance of the property is passed to the buyer with effect from the moment contracts are exchanged.

If you are taking out a mortgage on your new home, your mortgage lender will also  require you to have buildings insurance in place at the point of exchange.

  • If, for example, the house burns down between exchange and completion, the insurance policy will ensure that the property can be rebuilt.
  • If something happens to the property between exchange and completion, the mortgage lender’s equity is not protected without insurance.
  • The Law Society’s wording on standard conveyancing practice states that, under most circumstances, ‘The property is at the risk of the buyer from the date of the contract.’
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What about leasehold properties?

If you are buying a leasehold property:

  • The landlord will usually provide the buildings insurance until completion, then the buyer will reimburse them via their service charge.
  • Check the lease to ensure the buildings insurance will be covered by the landlord until completion, and is not your responsibility.
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What if I am buying off-plan?

If you are buying an off-plan property (a scenario in which contracts are exchanged before the home has been built), the time lapse between exchange and completion can stretch from months to years. In this case:

  • Usually, the seller will remain responsible for buildings insurance until the point of completion.
  • Your conveyancing solicitor will need to read the contract carefully to make sure this is the case; if buildings insurance between exchange and completion is not mentioned, that could mean you are responsible.
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Will any buildings insurance policy do?

No.  In fact every year thousands of people take out policies that are unsuitable.

When the unthinkable happens, unwitting buyers can then find themselves without a suitable policy and consequently without cover.

Why does this happen?

  • Conveyancing solicitors are sometimes partly responsible.  Most buyers are sometimes only made aware that they need to arrange cover just before or sometimes at the point of exchange.
  • In a state of mild panic, most buyers then buy a buildings policy in haste - typically online or via a comparison site
  • Comparison sites do not cater for, or make it clear that, the chosen policy may not cover the period between exchange and completion.  This may be explicit in the policy terms, but, in the flurry of activity around exchange, most buyers will not read this.

What can you do to make sure you get the right policy?

You should ask your solicitor if they know of a suitable policy ahead of exchange.  Alternatively, choose a specialist product such as 'Exchange2completion'.

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In summary…

  • For freehold properties, assume that buildings insurance between exchange and completion is your responsibility.
  • Make sure you obtain a policy that covers the period between exchange and completion.
  • Your conveyancing solicitor can advise you on any grey areas in your situation.
  • If you are taking out a mortgage, failing to arrange buildings insurance for this period could put you in breach of the mortgage conditions.
Gaynor Haliday, Legal researcher

About the author

Gaynor Haliday is an experienced legal researcher and published author. She has had numerous articles published in the press and is a legal industry commentator.

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