Don't lose your sale - How an Indemnity policy can help you.
Indemnity insurance provides a simple and reassuring way to manage potential legal issues when buying or selling a home. It helps ease concerns by covering any financial losses that might arise from things like missing paperwork or title issues, allowing both buyers and sellers to move forward confidently.
Understanding Indemnity Insurance in Property Transactions
Indemnity insurance is a valuable tool in property transactions, protecting both buyers and sellers from potential legal and financial risks. When purchasing or selling a home, certain legal or structural issues may arise, and indemnity insurance offers a way to resolve these issues quickly and at a relatively low cost. Let’s break down how indemnity insurance works and why it can be important in property deals.
What is Indemnity Insurance?
Indemnity insurance is a policy designed to cover specific risks related to property ownership, such as legal defects or missing paperwork. It is not meant to fix physical issues with the property, but rather to cover financial losses or legal costs that may arise from these defects.
This type of insurance typically protects against problems like:
- Missing building regulation certificates or planning permission for property modifications.
- Breaches of restrictive covenants (legal promises attached to the property).
- Title issues, such as possessory titles where ownership might be contested.
Once purchased, the policy remains valid for the lifetime of the property ownership and can be transferred to future buyers.
Why Would You Need Indemnity Insurance?
Indemnity insurance can be essential during property transactions when legal or structural issues surface. Buyers, sellers, or mortgage lenders may request indemnity insurance if the property has unresolved problems, such as:
- Missing paperwork for previous construction work.
- Lack of planning permission or building regulation approval.
- Title deeds that are unclear or incomplete.
- Property searches that are delayed or missing altogether.
Mortgage lenders may refuse to approve a loan unless these issues are resolved, and indemnity insurance can serve as a solution to allow the sale to proceed smoothly.
What Does Indemnity Insurance Cover?
Indemnity insurance primarily covers legal claims that may arise from the defect or risk identified during the conveyancing process. However, it does not cover the cost of fixing the defect itself. For example, if a home’s extension was built without planning permission, the insurance covers any legal costs related to enforcement, but it won’t cover the expense of obtaining permission or fixing the extension.
Here are some common types of indemnity policies:
- Planning Permission Insurance: Covers financial loss or legal action if work was carried out without the necessary permissions.
- Restrictive Covenant Insurance: Protects against breaches of legal agreements attached to the property, such as not allowing certain types of construction.
- Boiler and Window Insurance: Covers claims arising from missing certificates, like a FENSA certificate for windows or a boiler installation certificate.
- Chancel Repair Insurance: Covers costs if a property is liable for repairing a local church.
- No Search Insurance: Protects against risks that might have been revealed through local authority, drainage, or environmental searches if these are delayed or missing.
Who Pays for Indemnity Insurance?
Typically, the seller pays for the indemnity insurance, especially if the risk stems from something they did or did not do, like failing to get proper permissions for renovations. However, this can be negotiated between buyer and seller. In some cases, the buyer might cover the cost if they wish to move forward quickly, particularly if the issue is longstanding and unrelated to the seller's actions.
The cost of indemnity insurance depends on the nature of the risk and the value of the property. Most policies are a one-off payment and can range from as little as £12 for minor issues, such as missing a window certificate, to several hundred pounds for more serious risks like missing planning permission.
Why Indemnity Insurance is Important
Indemnity insurance allows property transactions to proceed without lengthy investigations or expensive repairs. Instead of dealing with potentially costly and time-consuming legal issues, both parties can secure an indemnity policy that transfers the risk of future legal challenges to the insurer. It is particularly useful for older properties or when paperwork is missing or incomplete.
However, it's important to note that if a party discloses the issue covered by the policy to third parties, such as the local authority, the policy may become void. This is because the insurance is often based on the low likelihood of enforcement due to the defect being unnoticed.
Conclusion
Indemnity insurance is a practical and efficient way to address legal risks during property transactions. It offers peace of mind by covering potential financial losses from issues like missing paperwork, title defects, or restrictive covenants, ensuring that both buyers and sellers can move forward with confidence. While it doesn’t resolve the underlying issue, it protects against future claims, making it a valuable safeguard in the often-complex process of buying or selling a home.
As always, if you have any questions or if you’d like some general advice about the Romford property market, get in touch using the details below.
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07969 638349
duncan.kaye@keysandlee.co.uk
Duncan has been selling homes in Romford for 23 years and helped thousands of people, couples and families move to a new home.
Having sold family homes, probate properties, off market homes and high value exclusive estates, Duncan will be able to work with you to achieve an outcome that suits your specific needs.