Indemnity policies: what are they and are they worthwhile?

What is an indemnity policy? 

Put simply; an indemnity policy provides protection for a specific problem relating to a property. If you are selling a property, the mortgage lenders and buyer’s solicitors may insist that an indemnity policy be taken out before the sale may proceed. Similarly, once they have examined the relevant documents, searches, and deeds, and raised any necessary enquiries, your solicitor may advise in favour of purchasing an indemnity policy in order to afford yourself protection from a potential issue. The purchase of an indemnity policy is a one-off payment which provides coverage for a specific issue.

Why might you be advised to take out an indemnity policy?

• Adverse possession indemnity insurance. This relates to the property owner claiming land with no evidence from the land register to prove ownership. An indemnity policy would provide financial recovery due to the losses suffered if the land owner came forward and required the land back. 
   
• Building regulations indemnity insurance. This is usually requested by the buyers’ solicitors and arises due to work that has been carried out on the property in question. This type of insurance would protect the homeowners from legal action from the local authority serving a building regulation enforcement notice. The local authority has the power to remove or alter work carried out on the building if it does not comply with the regulations. 
   
• Restrictive covenant. This would be requested when it becomes apparent that the seller or previous owner has fallen foul of a restrictive covenant land clause. These are found within the property deeds. For example, prohibiting any extensions on the property or for businesses to trade on the land. The purchase of an indemnity policy relating to a restrictive covenant would protect the new owner against breaches that had occurred.
   
• Absence of easement. This is usually required when part of the property or private land abutting the property lacks the necessary legal rights. Indemnity insurance relating to absence of easement protects against any losses suffered due to a challenge against the owner’s right to use the land.

What are the benefits of taking out an indemnity policy? 

Where there is a potential issue with the property, an indemnity policy can be an efficient tool to rectify these problems. This can also offer a quick outcome in what can potentially be an expensive and time-consuming process, eradicating the need to contact the relevant third party to obtain the desired remedy. 

The cost of such a policy would vary case by case, depending on the purchase price and the risk that would be insured against, but it often ranges from £50 - £200, which can be a small price to pay for security.

Take note

Indemnity policies work on the basis that no third party is or has been made aware of the defect or potential risk. This subsequently means that you must not contact a third party, as this would invalidate the policy.   

Indemnity policies are restrictive as they can only offer a financial remedy against specified costs or losses which may occur in the future. This does not cure the insured defect.

In practice, indemnity insurance is rarely claimed on, which could make one question its usefulness. However, it is still useful to have in place as it can provide the purchaser with ease of mind during a stressful period and help speed up the purchase or sale process.

Contact us today

Our conveyancing solicitors are well-versed when it comes to indemnity policies. Their expertise can be used to advise you on the potential need of an indemnity policy. If you are involved in a property sale or purchase and have questions regarding indemnity policies, get in touch with us today. We have offices in Brighton, Eastbourne, Hastings, London, Uckfield, and Ulverston. 

Our expert team of solicitors have helped clients all over the UK.