If you have exchanged contracts to purchase a new property and a disaster occurs destroying or damaging the dwelling you intended to purchase you will need to be aware of your rights under the contract.
When selling a residential property, the risk associated with that property does not pass to the buyer until completion of the sale. This means that generally the party selling the property remains responsible for the property and should retain all insurances until the sale has been completed. This circumstance would only change if the purchaser has elected to take early possession of the property. In this case, the purchaser accepts the risk of the property from the day they take possession and should have adequate insurances to cover the property from this date.
If the damage to the property is substantial, that is, damage which renders the land materially different from the condition in which the purchaser agreed to buy, the purchaser may rescind the contract. The purchaser would be released from their obligations under the contract and refunded the deposit. The seller would then rely on their insurance to repair the property before relisting it for sale.
If the damage is not substantial, a reduction in the purchase price may be negotiated on a basis which is just and equitable.
The take home message? If you are carrying the risk associated with a property, make sure you have adequate insurances in place.