Advice and Opinion

Don’t let your insurance lapse while your home is ‘in transfer’

What happens if disaster strikes while a home that has been sold is still “in transfer” to the new owner?

Who would have to pay for the repairs if, for example, a high wind were to topple a tree that causes damage to the roof? Or if a geyser springs a leak and there is water damage to ceilings, walls and carpets?

Jan Davel, MD of the RealNet estate agency group, says the answer should be that the costs will be covered by the insurance on the house – but that this will only be the case of the seller has kept up his home owner’s insurance (HOC) premiums to ensure that the property is covered until the actual date of transfer.

“Alternatively, if the buyer has already taken occupation while waiting for transfer, he might have taken out a new HOC policy, but clearly it is vital for both parties in any property transaction to be absolutely certain about the date on which the “risk” in the property passes to the new owner, and that the insurance cover will be continuous, whatever occupation arrangements they make.”

If the risk is to pass to the buyer only once the transfer of ownership is registered, he explains, the seller must actually have enough insurance until then to cover the total replacement of the building, even if he no longer lives there. Otherwise, he could end up having to pay to fix a home he has already sold and which is already occupied by the new owner.

“If, on the other hand, the sale agreement stipulates that the risk in the property passes to the buyer when he takes occupation, he must specifically make sure his new HOC policy is effective from that exact date, or he could find himself having to pay for rebuilding or repairs to a house that he doesn’t yet own”.

In general, Davel says, it is a good idea to allow the risk in the property to pass from the seller to the buyer on the actual day of transfer, and not on occupation by the new owner, unless this is the same date. Both parties should also check with their estate agent that this is written into the agreement of sale.

”Such an arrangement means the careful seller will stay fully insured until transfer, and that there will be no need for the buyer to take out special insurance. It also avoids the confusion that can arise over the fact that there is usually HOC insurance attached to the buyer’s new home loan, but that this does not become effective until transfer.”

He also notes that while most banks will insist that buyers take out HOC insurance as a condition of granting them a home loan, buyers are under no obligation to accept the HOC policies offered through the banks. “They can source their HOC insurance anywhere, as long as they are properly covered for any and all events that could lead to structural damage or collapse”.

“They should also make sure that the insured value of the property is higher than the current market value, to account for higher building costs and the additional costs of demolition and professional fees if the home has to be rebuilt.”