CeMAP MRT1 Valuations, Surveys & Buying at Auction question: arrange buildings insurance

CeMAP MRT1Valuations, Surveys & Buying at Auction

Dev wins a traditional auction for a house, with completion due in 20 business days. The special conditions say nothing about insurance. When should he arrange buildings insurance?

A From completion, as the lender’s offer requires, because risk stays with the seller until then
B From the fall of the hammer, because he is bound and the risk generally passes on exchange
C Only once he moves in, because buildings insurance is not needed on an empty property
D Only if the lender’s valuer finds defects, because the seller’s policy otherwise protects him

Show the answer and explanation

Answer: B. From the fall of the hammer, because he is bound and the risk generally passes on exchange

Exchange happens at the fall of the hammer, and at common law the risk of damage passes to the buyer on exchange unless the contract says otherwise (Paine v Meller (1801)). This differs from a private sale on the Standard Conditions of Sale, where risk stays with the seller until completion, so always check the auction's general conditions. Dev is bound to complete even if the house is damaged, so he should insure from exchange (Walbrook (formerly LIBF) MRT1 AC2.2, procedures to complete the purchase). The lender requires cover from completion at the latest, but that does not protect Dev in the gap, and the seller’s policy is not his.

Common mistake

Insuring only from completion after a binding auction exchange.

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Original practice material mapped to the published CeMAP MRT1 learning outcomes. Independent, not endorsed by Walbrook (formerly LIBF). Verify figures and rules against current guidance before relying on them.