PROJECT ADMINISTRATION ASSIGNMENT NO 1 [SEMESTER

Project Administration Assignment No 1 [Semester 2 - 2009 / 2010]

Project Administration Assignment No 1 [Semester 2 - 2009 / 2010]

Part 1

Referring to the scenario the cost of buying an insurance policy with a non-invalidating clause will usually be greater than the cost of a policy without one. As long as fire is an insured risk, the insurance company will pay out even if the fire breaks out in an uninsured neighbouring unit, and then moves across to the insured property. However, it will want to see sufficient “causation” between the fire and the ensuing damage: for example, was the peril against which the insurance was taken out the “proximate cause” of the damage? If the premises burn down when the landlord has already exchanged contracts for the sale of its reversionary estate, who will receive the insurance proceeds: the outgoing landlord, the tenant or the incoming landlord? As noted in the previous article, it is unlikely to be the tenant. Between the two landlords, section 47 of the Law of Property Act 1925 will apply unless a contrary provision has been included in the sale and purchase contract.(Jake Wanton 2003 Pp. 1008)

This section requires that any insurance moneys received by the outgoing landlord should be paid to the incoming landlord upon completion of the sale or, if later, as soon as the policy proceeds are received. In order for the buyer to take advantage of this provision, the legislation requires it to obtain “any requisite consents” from the insurance company. This means that the insurer must be aware that contracts have been exchanged and amenable to treating the buyer as an insured party, or the policy must already contain a contracting purchaser's interest clause. Moreover, the buyer must pay the due proportion of the insurance premium as from the date of exchange of contracts. Alternatively, the buyer of the landlord's reversion could effect its own insurance cover upon exchange. A contract provides the buyer with a separate (and therefore insurable) interest in the property to the value of the loss that it would suffer if the property were to be destroyed between exchange and completion. However, beware the danger of double insurance, where neither insurance company may be willing to pay out on the basis that the other should do so.( Silvai J. 2004 Pp. 1076)

To avoid this situation, the contract will usually state whether the risk of loss is to pass to the buyer on exchange or remain with the seller. In the case of multi-let buildings, where the outgoing landlord will be obliged to insure the entire property, the risk will usually remain with the seller; if so, this should be expressly stated. If not, the risk will automatically pass to the buyer, which will have to accept completion of the transaction - at the full purchase price - notwithstanding any damage to, or the destruction of, the building. Following completion of a sale, the new landlord must ensure that insurance ...