Who is responsible to insure the property?

As conveyancing solicitors, we understand there are many matters to consider when buying or selling your home or investment property. One question we are continually asked by our clients is, who is responsible to insure the property?

The simple answer to who is responsible to insure the property is contained in the contract of sale. The standard residential contract of sale provides that the property is at the Buyer’s risk from the first business day after the date of the contract.  As a matter of practicality, that means that if the property is damaged then, at least in most cases, the Buyer still needs to complete the contract to purchase the property. The result unless the Buyer has insurance in place, can be that the Buyer is left to buy a property which is worth much less than it was when they signed the contract.

The flip side of the Buyer taking on that risk is that, from the next business day after the date of the contract, the Buyer has an insurable interest in the property. As a result, and to avoid the problem referred to above, the buyer should make arrangements to take out insurance to at least the extent of the value of the improvements on the land, immediately upon a contract coming into existence with a Seller. We also recommend that public liability insurance be taken out (including for vacant land).

Alternatively, if clients are buying a property within a body corporate there may not be an obligation at all to ensure the property as the body corporate is responsible to insure the buildings and assets of the body corporate. Buyers should seek this information from the seller or their real estate agent prior to signing a contract to purchase the property.

However, as with many conveyancing contracts, standard conditions are changed depending on what the parties to the contract agree to at the time of entering into the contract. In some instances, the standard clause of the contract regarding risk is changed to the effect that the property remains at the risk of the seller up until settlement. If this is the case, the buyer would not be required to take out insurance for the property until settlement.

Whether you are buying or selling, by far the safest way to ensure that you are covered in the event the property is damaged or destroyed during the contract period is to obtain, if you are a buyer, or maintain, if you are a seller (until you no longer own the property), insurance over the property.