Damage to Property After Exchange of Contracts and Before Settlement
What is the situation if you are either a vendor or a purchaser under an exchanged contract and damage occurs prior to settlement?
It is usual for a vendor to retain insurance until such time as settlement has taken place, unless the purchaser takes occupation of the property prior to completion/settlement, in which case, risk passes to the purchaser.
Let us imagine a situation where the purchaser has not taken occupation and the property is severely damaged.
The purchaser has been made aware of the damage and is looking to the vendor to make good the property and restore it to the condition that it was in at the time of exchange of contracts.
The purchaser can delay the settlement without penalty until these works have been completed.
The vendor will be aware of the damage and will have contacted the relevant insurance company who will send an assessor to the property to firstly confirm that the damage has occurred due to the storm and secondly confirm that it will cover the cost of the repairs.
So what is happening to the completion date under the contract while this is on going?
Most contracts provide that the property will remain in the condition that it was in, with the exception of general wear and tear, on exchange of contracts. In most cases, the settlement would be delayed until such time as the major repairs had been completed.
It is perfectly possible for the vendor and the purchaser to come to some agreement that the purchaser will complete the contract subject to the repairs being carried out at the cost of the vendor/vendor’s insurer. A copy of the assessment by the insurance company should be provided to the purchaser together with a list of works to be carried out and if possible the date that all works will be completed.
What would be the situation if the purchaser was already in possession of the property prior to completion.
Clause 18.4 of the contract under the heading Possession before Completion states that “The risk as to damage to the property passes to the purchaser immediately after the purchaser enters into possession”. It is therefore of utmost importance that any purchaser wishing to take possession of a property prior to completion is made fully aware of this and adequate insurance is taken out at the time of occupation.
At Rankin Ellison Lawyers we ensure that both our vendors and our purchasers are fully appraised of their requirements and obligations in relation to insurance at the time of exchange of contracts, therefore minimizing any undue and unnecessary problems and worries should damage occur.