When buying a property, buildings insurance can feel like another task to tick off before moving day. But what happens if a fire or flood causes serious damage between exchange and completion? Drawing on a close friend’s experience, Meg Riffel, a Property Solicitor at Aaron & Partners, explains why insurance matters from exchange, what residential and commercial buyers should check, and how to avoid a potentially costly gap in cover.
A phone call I won't forget
A few months ago, a close friend rang me late on a Sunday evening. She had exchanged contracts on her dream home, a lovely period house, just over a fortnight earlier. Completion was set for the following week. Her voice was shaking: there had been a fire, and the house was gone.
My first question, as both a friend and a property lawyer, was: "Did you insure it from exchange?" There was a long pause, then a relieved "Yes. My solicitor told me to." I have rarely been so pleased to hear an answer.
Even so, the months since have been hard. There have been loss adjusters, conversations with her lender, questions about whether she was still bound to complete, discussions with the seller's side about their own policy, and the simple heartbreak of losing a home she had already started to picture herself living in. Having insurance did not make the problem disappear, but it meant she had options and was not facing the prospect of paying full price for a pile of ash.
Many buyers think of exchange as a paperwork milestone and completion as the moment the property becomes "theirs". Legally, the position is more nuanced, and getting it wrong can be catastrophic.
Why exchange matters so much
In England and Wales, an offer to buy property is not legally binding until contracts are exchanged. Once contracts are exchanged, the agreement to buy and sell becomes legally binding, and usually neither side can pull out without paying compensation.
Under the traditional general law, once a binding contract is exchanged, the buyer is treated as the owner "in equity". The buyer therefore bears the risk if the property is damaged or destroyed before completion. In plain English, unless the contract says otherwise, if the house burns down the day after exchange, the buyer may still have to complete and pay the full price.
There is a limited statutory safety net. Section 47 of the Law of Property Act 1925 says that if, after the contract date, money becomes payable under the seller's insurance policy for damage to or destruction of the property, the seller must hold that money for the buyer and pay it over on completion (or as soon as the seller receives it).
However, this only applies subject to any contrary term in the contract, any necessary insurer consents, and the buyer paying a proportionate part of the premium from the contract date. It depends entirely on the seller having a valid policy that actually pays out, and it gives the buyer no direct claim against the insurer. In other words, it is a fallback, not a plan.
Official government guidance for home buyers is clear. To exchange, you need to arrange buildings insurance, because once you sign the contract you are legally responsible for the property.
Residential Property: What You Need to Know
Who bears the risk?
Most residential sales in England and Wales use the Standard Conditions of Sale (currently the fifth edition, 2018 revision). Condition 7.1 reverses the traditional rule. The seller generally keeps the risk until completion, and if the property becomes unusable for its purpose before completion, the buyer can usually rescind (cancel) the contract. Earlier editions of the conditions took a different approach, which is one reason why you should never assume which rules apply.
That sounds reassuring, so why insure from exchange?
There are several reasons:
The contract may change the rules
Sellers' solicitors can and do amend the standard conditions, and new-build developers often use their own contracts. Your solicitor needs to check exactly what your contract says.
The seller is not obliged to insure
Under the current standard conditions, the seller keeps the risk but is not required to maintain insurance. If the seller has no cover, or their policy lapses or is invalid, your practical remedies may be limited.
Your lender will almost certainly insist on it
Most mortgage lenders require buildings insurance to be in place from exchange. For example, the Homes England Equity Mortgage Lender's Handbook for Conveyancers requires conveyancers to make reasonable enquiries that buildings insurance has been arranged from no later than exchange, and asks that the lender's interest be noted on the policy.
Rescission is not always the outcome you want
Walking away gets your deposit back, but it does not get you the home you wanted. With your own policy, you have more choices, including completing and rebuilding.
What level of cover should you get?
- Insure for the full rebuild (reinstatement) cost, not the purchase price or market value. Your lender's valuation report will often state a reinstatement figure.
- Make sure the policy starts on the day of exchange and covers standard perils such as fire, flood, storm, subsidence and escape of water.
- Check whether the property will be unoccupied between exchange and completion. Many policies restrict cover for empty properties, typically after 30 or 60 days.
- For leasehold flats, the landlord or management company usually insures the building. Ask for a copy of the block policy and confirm it is current and adequate. You may still want your own contents cover.
Commercial property: A Different Starting Point
Commercial property transactions usually use the Standard Commercial Property Conditions (currently the third edition, 2018 revision). Here the position is quite different. Under condition 8, the general rule is that the buyer bears the risk from exchange. The parties can choose a Part 2 option (condition A1) under which the seller keeps the risk and agrees to insure until completion, but this must be expressly selected.
Commercial contracts are also far more likely to be heavily negotiated, so the insurance provisions may be bespoke.
Practical points include:
- Agree who insures, and record it clearly. If the seller is to maintain cover, the contract should specify the insured sum, the insured risks, and what happens to proceeds.
- Consider loss of rent cover. If the property is let, damage could stop rent being paid. Investors should check loss of rent and service charge cover.
- Check the leases. Where a property is sold subject to leases, the landlord is often obliged to insure under those leases. A buyer stepping into the landlord's shoes needs seamless cover from completion, or earlier if the buyer is on risk.
- Think about liabilities and specialist risks. Property owners' liability, terrorism cover, plant and machinery, and contamination can all be relevant.
- Development sites and vacant buildings often need specialist cover, and standard policies may exclude them.
Common pitfalls we see
A gap in cover
Buyers arrange cover from completion, not exchange, or delay setting it up and forget.
Assuming the seller's policy will protect you
It might not exist, may lapse, or may not pay out.
Under-insurance
Insuring for the purchase price rather than the rebuild cost, particularly with older or unusual homes.
Listed buildings and period properties
These can be far more expensive to rebuild with matching materials and specialist trades. Tell your insurer and use a specialist policy if needed.
Unoccupied properties
Empty homes and probate properties often have restricted cover. Disclose that the property is vacant.
Non-disclosure
Failing to tell insurers about thatched roofs, non-standard construction, past subsidence or planned works can invalidate a claim.
Forgetting the lender
Many lenders require their interest to be noted on the policy. Check your mortgage offer conditions.
Long gaps between exchange and completion
New-build and delayed completions can mean months of risk exposure.
If the worst happens before completion
Here is what I told my friend, and what I would tell anyone in her position:
- Make sure everyone is safe, and contact the emergency services if needed.
- Call your solicitor immediately. They will check the contract terms on risk, rescission and insurance, and contact the seller's solicitor.
- Notify your insurer straight away, and also make sure the seller notifies theirs. Keep a record of all communications.
- Tell your lender. Your mortgage offer may be withdrawn or suspended until the position is clear.
- Do not complete, or refuse to complete, without advice. Whether you can rescind or must complete depends on the contract. Getting it wrong could put you in breach.
- Gather evidence: photographs, reports, and any correspondence about the incident.
- Look after yourself. These situations are stressful and may take months to resolve. Lean on your advisers.
Courts are generally reluctant to treat a land contract as "frustrated" (automatically ended) just because something unexpected happens after exchange, so do not assume the contract will simply fall away. The answer will usually be found in the contract terms and the insurance arrangements.
Key questions to ask before exchange
- Which conditions does the contract use, and have they been amended on risk or insurance?
- Who bears the risk between exchange and completion under this contract?
- Does the seller have buildings insurance, and will it stay in place until completion?
- What are my lender's insurance requirements, and does the lender need to be noted on the policy?
- What is the reinstatement cost, and is my sum insured adequate?
- Is the property listed, of non-standard construction, or likely to be unoccupied?
- For a flat: who insures the building and can I see the policy?
- For a commercial property: are there leases with landlord insurance obligations, and do I need loss of rent cover?
Summary checklist
- Treat exchange, not completion, as the moment you need insurance in place.
- Arrange buildings insurance to start on the day of exchange. Have it agreed in principle before the exchange date is fixed.
- Insure for the full rebuild cost, not the price.
- Ask your solicitor to explain who bears the risk under your contract, residential or commercial.
- Comply with your lender's insurance conditions.
- Disclose anything unusual, especially listed status, vacancy, or non-standard construction.
- If damage occurs, call your solicitor, insurer and lender before taking any other step.
My friend's story is not over. She is still working through the claim and deciding what comes next. But because she insured from exchange, she is making those decisions from a position of protection rather than panic. If you take one thing from this article, let it be that: insure from exchange.
This article is general information about the law of England and Wales as at October 2026 and is not legal advice. Contract terms vary, so always take advice on your specific transaction.
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