Why you ought to insure your new house, even prior to settlement
Every now and again in this busy and profitable property market we have experienced, a vendor or purchaser or both may be tempted to save money by not renewing insurance in the case of a vendor, or not taking out insurance in the case of a purchaser.
The problem is that the standard contract of sale for residential properties provides that the property remains at the risk of the vendor until settlement. There is no concurrent obligation on a vendor to maintain insurance except where a property is sold on terms which is most unusual.
Many purchasers, however, fail to take out insurance, merely to save 60 days premium on expensive properties prior to settlement.
Significant risk arises when neither party has insurance and the property is damaged by fire or vandals.
If significant damage occurs then the issue arises as to whether the purchaser should settle, should settle with a cash adjustment or endeavour to avoid the contract if the damage is so great that what is left of the property does not represent the property as purchased.
The possibilities are a Supreme Court case involving legal costs of $40,000 or so to be paid by the loser.
A further risk occurs when a vendor is selling an un-insured property as there is no public liability cover and an agent or potential purchaser who suffers injury while inspecting the property, may sue the un-insured vendor with grave consequences for the vendor.
All this can be avoided if both parties go to the trouble of arranging insurance.
Even if the vendor has insurance, which the purchaser won’t know, it is worthwhile for the purchaser to take out the cover during the 60 or 90 days pre settlement. Some lenders and associated insurers provide this cover for nothing if the policy is taken out from the date of settlement onwards by the purchaser.
Cases where insurance by the vendor has lapsed sometimes arise from family disputes or relationship disputes where one or other party avoids the responsibility of making sure the property is covered with insurance.
Recently we had a case where neither party was insured and the property was vandalised leading to much anxiety and unnecessary legal costs.
Don’t hesitate to talk to us about these issues or with your insurance broker. But always be insured.
John supervises litigation and conveyancing law and leads the implementation of IT and electronic conveyancing in the firm. He loves High Street Thornbury,” the new Brunswick Street”.