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The Guardian recently reported (28th July 2018) on the story of the Callahans, who exchanged contracts on their new home and are now left facing a large bill after it flooded between exchange and completion, as a result of a burst pipe.
The family were left with two options – to complete the purchase despite the damage and pay for the repair works, or withdraw from the purchase altogether. Doing the latter would have seen them lose their deposit and be liable for the costs of the other parties in the chain.
Their story serves as a cautionary tale for home buyers and highlights the need to ensure that buildings insurance is in place from the exchange of contracts.
What does ‘exchange’ mean? When you are buying a house, the purchase does not become legally binding until contracts are exchanged. On exchange, the solicitors for each party will confirm the terms of the purchase and agree a fixed date for completion. If one of the parties to the transaction fails to complete on the agreed date, they will be in breach of a binding and enforceable contract.
The contract incorporates the Standard Conditions of Sale, which confirm that ‘The property is at the risk of the buyer from the date of the Contract’ (5.1.1.) Therefore, once contracts have exchanged, the seller is under no obligation to continue to insure the property – they could call their insurers the same day and cancel the policy if they wanted to!
Buyers must ensure that they have insurance in place on exchange of contracts and a prudent Solicitor will advise their client to do this in their pre-contract report. If anything happens to the property between exchange and completion and the property is not insured (as in the Callahan’s case), the seller is under no obligation to remedy the damage or contribute towards any costs.
Myerson’s Residential Property Team has experience in a wide range of property matters. If you are thinking of moving house we provide a bespoke, tailored service for our clients and will prepare a comprehensive pre-contract report for you to provide you with all the information you need about the property.