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Is it the seller or the buyer responsible for insuring a property after contracts have been exchanged but the sale hasn’t completed?

When buying or selling a property, whether residential or commercial, the ‘to do’ list can be quite daunting, and it’s quite possible you already occupy a property that you may be moving out of into the property you are buying. Thinking about what insurance you need and when to arrange it can often be one of the last things on your ‘to do’ list.

If you are selling a property to buy the new one, it’s usually the case that solicitors will try and arrange completion of all properties in the chain on the same day. But what if contracts were exchanged previously, perhaps a few weeks ago – who is responsible for insuring the property?

You may just tell your insurers to change the address from your old property to your new property on completion, but what if something happens between exchange and completion? Who is responsible for arranging the insurance to cover the loss?

Whilst it’s possible that the sellers insurance will extend, or can be extended to cover the buyers interest, you certainly can’t rely on this, and once contracts are exchanged, under common law the buyer has an interest in the property as they are required to complete the purchase once the contracts have been exchanged, so they should insure the property to protect their interest.

Does this mean the seller can cancel their cover after exchange?

It may be possible, but we wouldn’t recommend it. Under the terms of any mortgage or lease you may still be required to insure it, and there is always the risk that the buyers insurance could fail if they haven’t arranged it correctly, or they may not complete the purchase.

Although different conditions of sale will apply for residential and commercial property sales the same principles will apply to commercial property sales and the buyer and seller should ensure they have their interests protected and insure the property. In the event of a claim, dual insurance may apply, but insurers will be able to discuss with each other who contributes what to the loss, which will be dependent on the policy wording of each policy.

The above is a general guide, and of course different contractual arrangements may change the position so you should discuss with your legal advisor in more detail exactly when you are responsible for the insurance cover, and don’t forget to speak to your insurance advisor in good time so that the appropriate arrangements can be made and the relevant paperwork prepared, as proof of insurance cover may be a condition of sale by certain mortgage providers.

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