Buyer’s contract negotiation guide—insurance and risk
Buyer’s contract negotiation guide—insurance and risk

The following Property practice note provides comprehensive and up to date legal information covering:

  • Buyer’s contract negotiation guide—insurance and risk
  • When does risk pass to the buyer?
  • How is insurance dealt with if the property is vacant?
  • Seller not obliged to insure
  • Does the buyer need to review the seller’s insurance policy even if the seller is not obliged to insure after exchange?
  • Risk of double insurance if buyer and seller insure following exchange?
  • How to deal with the risk of double insurance
  • How is insurance dealt with if the property is let?
  • Seller’s obligation to insure—what are they obliged to do?
  • Does the policy cover a buyer’s interest between exchange and completion?
  • More...

When does risk pass to the buyer?

The fundamental principle which most contracts invariably follow is that risk passes to the buyer on exchange of contracts—the parties would not ordinarily vary this unless the seller is carrying out works or perhaps there is a long period between exchange and completion. This reflects the common law principle (also know as the open contract position) and is reflected in the Standard Commercial Property Conditions (SCPCs). In this note we refer to the SCPCs generically, but specify where the Second and Third Editions differ. The Second Edition does not contain any express provision to the contrary and so the open contract position remains unaltered. The Third Edition simply restates the open contract position in condition 8.1:

‘The property is at the risk of the buyer from the date of the contract.’

The question of passing of risk is a separate question to that of who insures between exchange and completion. The latter turns on whether the property is being sold with vacant possession or subject to leases. Whatever the insurance position, the risk must pass to the buyer as there may be damage by uninsured risks (although this is subject to the seller’s obligation to look after the property—see Duty to look after property below).

If the property is in the course of construction before completion then the parties will generally

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