Update after Recent Marlborough Earthquakes: Important Insurance Information for Home Buyers
We understand that insurers are again not issuing new policies in the wider Nelson, Marlborough and Wellington Regions. As has been the case since 21 July, you need to be very careful when entering into agreements to buy property and particularly careful while this new embargo is in place.
There are a number of options available if the insurance embargo is not lifted before you want to contract to buy a house. Your agreement for sale and purchase needs to reflect the current risky situation. This means considering if there is current or may be future damage to the property and putting in place arrangements to deal with the current insurance environment.
If no further large earthquakes occur, the embargo should be lifted. Even if this is the case, you need to be careful that the insurer does not want to exclude particular risks from your policy.
If you are building and construction is almost complete, the insurer who is holds the builder’s construction insurance may be inclined to provide house insurance for the completed dwelling (as they have the relationship with the building and the building).
Every situation is different and this is not a complete statement of the current position regarding insurance. We are happy to help you with your particular issues.
As a result of the recent significant Marlborough Earthquakes last week, many insurers are, at least for the time being, refusing to issue new residential house policies in the Marlborough region. This has caused serious difficulties for home buyers in Marlborough because the banks invariably require proof of insurance for a property before they advance the mortgage funds required for settlement. Simply put, without insurance a home buyer requiring a mortgage may not be able to settle and may therefore be liable for damages under the agreement for sale and purchase for not settling.
Through dealing with Canterbury properties over the past few years, Gascoigne Wicks has become familiar with potential pitfalls and ways to avoid them. This article seeks to provide brief advice to potential home buyers in the Marlborough region, in an effort to avoid the problems regarding insurance which many home buyers are already facing.
If you are looking to purchase a new house in the Marlborough region, you need to contact your lawyer before signing any agreement for sale and purchase. Your lawyer will ensure that special clauses are added in to any such agreement, including:
- a clause making the contract conditional upon the purchaser obtaining suitable house insurance; and
- comprehensive vendor warranties regarding assignment (transfer) of any claims lodged with by a seller against the Earthquake Commission (“EQC”) or their private insurer in respect of any earthquake damage caused to the house you are looking to purchase.
The wording of the specific clauses will vary depending on the circumstances of the buyer and seller and your lawyer will be able to advise on the appropriate additional clauses for you.
If you entered in to an agreement to purchase a property prior to the Earthquake and that agreement is not yet unconditional, then we recommend you start making enquiries of insurers (you could engage an insurance broker to do this for you) and make sure that you have received written advice from your insurer that it will issue a house insurance policy for the property you intend to buy. Insurance cover should always be obtained before going unconditional on your purchase. Any finance approval received will be subject to you obtaining insurance, therefore we would strongly recommend that you not confirm any finance condition in your agreement unless and until insurance has been obtained.
If your agreement to purchase a property is already unconditional and you have not yet obtained insurance, then our advice would be to shop around in an effort to secure insurance as soon as possible.
If no insurer is willing to issue a new policy for you, all is not lost. As has been common practice in Canterbury recently, many insurers are willing to assign the seller’s insurance policy to the buyer on settlement. This is an ideal result for a home buyer unable to obtain a new insurance policy, but this does not happen automatically. The seller needs to come on board as soon as possible by providing their policy details to the purchaser and authorising their insurer to liaise directly with the purchaser. It is common for the insurer to require an engineering report of the property, or something similar, and the cost of such a report will usually be borne by the home buyer. If a home buyer requiring a mortgage has not yet obtained insurance and settlement date is looming near, then we would recommend that each party agree, through their lawyers, to defer settlement date pending assignment of the seller’s insurance policy.
Although we hope this article is helpful, it cannot be relied upon as a substitute for legal advice and does not apply to all home buyers. If you are considering buying a home in the near future, we strongly recommend that you contact your lawyer as soon as possible to discuss potential earthquake-related issues. Of course, we would be happy to assist.