You get a call from your estate agent saying your property exchange has been successful. You are told to arrange building insurance. Completion will take a few weeks and your agent will be in touch when you can come into the office to collect the keys.
Two weeks later you get the keys and pop over to your property. As you open up, you realise that the whole of the ground floor has been flooded. The carpets are ruined and the fridge and cooker left by your vendor may need to be thrown away. You didn’t realise you owned your house from the point of property exchange and you have not yet arranged building insurance. You’ve spent all your money on the deposit and don’t have the capital to do the property repairs.
This scenario may sound unlikely but freak weather and accidents during building work can easily cause flood damage at any time and empty properties are more at risk than occupied premises. You sign contracts before your property exchange and take possession at that point legally, irrespective of when you move in. Some transactions happen very quickly with no chain or a cash buyer but sometimes it takes months to complete the transaction. If a flood or fire breaks out after exchange you will lose your deposit as a minimum.
Buy building insurance before property exchange to avoid flood damage or fire damage.
Your mortgage lender should ask to see evidence of building insurance before property exchange or at the very least an insurance quotation. If there is no insurance in place between property exchange and completion, you will be in breach of the mortgage conditions.
For residential (or commercial) leaseholders who may live in a block of flats, the landlord will usually arrange building insurance for the whole property. However, if it’s a small block or shared office, the tenants may have to make the arrangement for building insurance. As a buyer you may need to put in place a contingent building indemnity policy to protect the mortgage lender’s security. The amount of this policy should cover the total value of the property.
If you are transferring your building insurance to your new property, you must give your insurer your new address well in advance of your move. You must also make sure that your existing property remains covered until after completion of the sale. You can cancel the transfer of building insurance if the sale falls through but a very short amount of double cover will minimise any risk to either property. This includes arson or an undetected leak, particularly in empty property such as a warehouse.
You may need double building insurance cover for a short period of time between property exchange and completion.
As a business owner, you may want to arrange business insurance for a new commercial property. Once again you need to do this before property exchange. You will need contents insurance to cover fittings and fixtures, stock and business interruption insurance so make sure your building insurance is comprehensive, not just cheap.
Calculating the amount of building insurance is important because it must take into account a fire or flood and the cost of a potential rebuild. You should also arrange “goods in transit” business insurance which will cover equipment including computers and machinery during the move. It is particularly important if goods are in storage or transported a long distance.
Shop around for comprehensive building insurance and “goods in transit” insurance.
If you are unlucky and your new property is flooded or a fire breaks out, Charles Piton Ltd can help you document the damage and give you a quote for your building insurance company. CPL can also recover and repair as many fittings and fixtures as possible. CPL will be by your side in the event of a fire or flood.