You’ve bought a new house. But what if it gets wrecked before you move in? | Home insurance

The moment Aarifa and Adam* stepped into their new home was supposed to be a memorable one. And it was. The ceilings lay on the floor. Electric cables dangled from the exposed rafters and water was pouring through two storeys.

It was only when the couple had collected the keys that they discovered that a frozen water pipe in the loft had burst, flooding the property from top to bottom. Since the vendor lived abroad, no one had noticed. The damage is estimated at £100,000.

That was last December. Since then, the pair and their two young children, have had to stay with relatives, while paying more than £17,000 in mortgage, utilities and council tax bills, as neither the vendor’s insurer nor their own would accept liability.

“Our lives went on hold,” says Aarifa. “Our belongings had to go into storage, the school transfers for our children had to be cancelled, and we have had to move in with my in-laws an hour away, as we can’t afford to pay rent on top of the mortgage.

“Our insurer insists that they are not responsible, and we’ve heard nothing from the vendor’s insurer since he lodged a claim in December.”

The family’s ordeal highlights a little-known legal trap faced by buyers between the exchange of contracts and completion day, which happens, on average, two weeks later.

Following a change to the national conditions of sale – the most commonly used conveyancing contract drawn up by the Law Society – the buyer becomes legally responsible for the property once contracts have been exchanged, even though the seller remains the legal owner and in charge of its upkeep.

The amendment obliges buyers to have appropriate insurance in place as soon as they have signed the contract. Sellers no longer have to maintain cover, although many choose to do so, meaning that a claim can stall as the two insurers squabble over liability. Moreover, since the rule change in 2011, purchasers can no longer withdraw from a contract if the house is destroyed before completion day. Before that, sellers had to hand over the property in the same condition as when contracts were exchanged.

Aarifa and Adam completed their purchase before the damage was discovered. But even if they had spotted it after exchanging, and the seller had refused to stump up, they would still have been forced to proceed with the purchase and make good the wreckage themselves.

They had insured their future home with RSA when contracts were exchanged a week before Christmas. By the time the burst pipe was discovered, after the purchase completed the following day, the upper floor was under inches of water and the ceilings in most of the rooms had collapsed.

RSA refused to pay out, claiming that the pipe must have burst the day before exchange, when neighbours reported hearing the burglar alarm and weather records showed freezing temperatures. That would have meant the vendor’s insurer, Chiswell, was liable for the repair bill.

However, Chiswell, part of Simply Business, insisted that there was no evidence that the damage was caused on its watch. Since the house was empty, the timings could not be proved. The family felt abandoned.

“Simply Business did a site visit at the end of February, but despite stressing the urgency, we heard nothing after that,” says Aarifa. “We cannot even begin fixing the damage in case it invalidates our claim.

“If it weren’t for our parents, we don’t understand how we would be expected to afford temporary accommodation costs alongside the mortgage for this long.”

The couple were hampered by the fact that they are not the Simply Business policy holder, and have had to rely on the vendor to monitor the claim from overseas. And because they are not the policy holder, they were unable to complain to the Financial Ombudsman Service about the company’s handling of the case.

The two insurers only began mutual talks after the Observer got involved. Eight months after the flood, they finally agreed to share the repair costs and to cover rental payments and storage costs, so that the family could move into more suitable accommodation.

Simply Business says: “We recognise this has been a particularly difficult period for those affected, and can confirm that, although our underwriter HDI does not believe that it has any legal liability for the claim under the terms of its policy, both insurers have worked together to settle this complex claim.”

RSA Insurance says: “We understand this must have been a difficult situation for the customers, and their experience has fallen short of the service that we wish to provide.

“We were keen to resolve this issue and we’re pleased to say that, following discussions with the seller’s insurance company, we have now come to a resolution where we have agreed to share the cost of the claim.”

RSA has offered £1,500 in compensation for the delays.

Conveyancing solicitors claim that the amended rules governing property sales leave purchasers bearing responsibility for a property over which they have no control.

“Almost all buyers remain ignorant of the shocking fact that they will be required to complete on, and pay full price, for a burnt-out shell, if the property is damaged between exchange and completion,” says Antonia Brandes, partner with the legal firm Gunnercooke.

“Under the previous rules, the buyer could withdraw from the contract if the property became uninhabitable after contracts were exchanged. The obligation for buyers to take out insurance is like putting a sticking plaster on an amputation.”

According to Brandes, the national conditions of sale are not mandatory, although most conveyancing firms have signed up to them. She urges purchasers to insist that risk is transferred to the seller before they sign the contract. “Solicitors will protest, but the seller is unlikely to want the sale scuppered by refusing,” she says.

The Law Society, in a statement to the Observer, admitted that buyers were unable to comply with insurer’s requirements to take reasonable care of the property while the seller remained in control. However, it added that the old rules were out of step with common law principles and unpopular with sellers.

“Ultimately, the parties are free to negotiate any contract terms they may agree. The standard conditions of sale are just a base line of suggested provisions,” it says.

Aarifa and Adam face many more weeks of waiting while surveys are completed and repairs go ahead. They say the months battling insurers while living out of suitcases has left them shellshocked.

“We arrived, excited to move in to our family home, only to walk into a nightmare,” says Aarifa. “It was one of the most traumatic days of our lives.”

*Names have been changed