A few years ago, I received a telephone call from an excited client on the day fixed for completion of the purchase of her new house. When she told me that her house was "toast" I asked her what she meant. It had burnt down the night before. The fire had completely destroyed the house which was, indeed, toast.

I looked at the Contract of Purchase and Sale which was in the standard form. Item 6 entitled "Risk" states, "All buildings on the Property and all other items included in the purchase and sale will be and remain at the risk of the Vendor until 12:01 a.m. on the Completion Date. After that time, the Property and all included items will be at the risk of the Purchaser." The fire had occurred before midnight of the day preceding completion and so was at the risk of the Vendor. There was no need for my client to proceed with the purchase of the house which was incapable of being delivered in the condition as viewed. However, she had the option to proceed and take an assignment of the benefit of the insurance proceeds. This was difficult from a practical standpoint because it involved the co-operation and consent of her mortgage lender. Therefore, she elected to not proceed.

Her next question had me puzzled. "Where am I going to live?". She had to be out of her apartment and had no house to move to. Legal research told me that as the Purchaser in a Contract of Purchase and Sale, she had an insurable interest in the property. In some jurisdictions it is common practice for the Purchaser to take out insurance on a house prior to purchasing, but that is not the case in British Columbia. There was really no remedy for my client for interim accommodation other than the possibility of a lawsuit in negligence against the person who caused the fire. The result of such an action was uncertain at best. In the end, my client put her goods in storage and moved in with a relative until she could find a replacement house.

In conveyancing, it is good practice to have an overlap in insurance coverage on the completion day. Both the Purchaser and the Vendor should have their fire and liability insurance policies in place and the Purchaser's insurance should commence a moment after midnight on the morning of the Completion Date if not the day before. In this way, even before title is transferred, the Purchaser's interest is insured. This is important because the contract states the Purchaser to be at risk. Title, however, is in the name of the Vendor until the transfer is lodged, so it is important that the Vendor's interest be insured as well because it remains their property until the transfer takes place and the money is paid. Not only does this apply to fire insurance but liability insurance as well. If an accident occurs on the property on the Completion Date, the Occupiers Liability Act can impose financial responsibility upon the owner whoever that may be at the relevant moment in time.

It is always a good idea for parties to a real estate transaction to have a contingency plan. Vendors often depend upon sale proceeds for concurrent purchases. Failure of these funds to flow can result in liability for breach of the subsequent purchase contract. Purchasers are expecting a place to live. This may be delayed in cases of foreclosure sales or new construction. It may be impossible in case of fire.

Please call or e-mail me with questions or comments you might have.