As a buyer, your conveyancer’s job involves fact finding on your behalf. This includes investigating the property title for any ownership issues, carrying out searches with third parties, as well as requesting information directly from the seller’s solicitors.
It is to make sure you are fully aware of the responsibilities and liabilities that come with your property and to ensure you are not left dealing with the costs for something that happened with the property in the past. However, sometimes certain ‘grey areas’ remain. For example, paperwork which granted building regulation consent for a completed extension is missing.
Or, in other situations, your conveyancer may have submitted a search to the local authority, but the delays in getting the results back might jeopardise the whole transaction. This is where an indemnity policy comes in. This type of insurance offers you protection against the costs of legal liabilities that you could find yourself facing in the future.
It is important to know that indemnity insurance will protect you against costs that might arise because of a problem with the property. However, it generally won’t cover the costs of fixing the underlying problem.
As an example, let’s say it comes to light that there’s a defect in your property extension which means it doesn’t comply with building regulations. You can’t claim on the policy to have the problem fixed. You can, however, rely on the policy to cover the costs of enforcement action taken by the local authority for breach of the regulations.
Conveyancers generally recommend taking out an indemnity policy when there is no easy or practical way of fixing a particular issue.
Often, a policy is needed because of uncertainty: i.e. where it’s possible that you could be faced with a liability, but an absence of information (e.g. missing certificates) means there’s no way of knowing for definite at this stage.
Time is the other key reason for taking out a policy. While it may be possible to search harder and wait for information to come through, doing so could cause severe delays to the transaction. A policy can protect you, while also keeping things moving.
Common types of cover include the following:
Local authority searches reveal information such as planning applications relevant to the property, building control history and restrictions on development. Sometimes these searches only take a few weeks. However, especially in light of Covid-19 disruptions, a number of councils are taking several months to process search requests.
If waiting for a local authority search is going to hold everything up significantly, a local search indemnity policy might be appropriate. This policy covers the risk of something negatively affecting the value of the property, which otherwise would have been revealed in the search results.
Work has been carried out on the property, but the relevant approval and compliance records cannot be located. This type of indemnity policy protects you against the local authority taking legal action for breach of planning permission rules or building regulations.
If the only way possible to access part of your property (drains, for example) is by crossing into a neighbours garden, you’ll need a right of access (known as a ‘Right of Easement’). But, it can sometimes be unclear from the title records whether such a right exists. An absence of easement policy covers any costs that arise if a neighbour tries to block your access.
Let’s say the property you want to buy includes a large stretch of garden. The seller claims ownership over this land, but doesn’t have the necessary evidence to satisfy the Land Registry that they are the true owner. Under the ‘adverse possession’ rules, to claim ownership, they must have occupied the land for at least the last 12 years. However, for a further period of 12 years, it may still be possible for someone else to take the land if they can show a better claim of ownership.
If someone comes along with such a claim, an indemnity policy covers the costs involved in defending it.
A ‘restrictive covenant’ is a private agreement between property owners, whereby one agrees not to do something for the benefit of another. Some examples include agreeing not to extend the property, or to not convert a single dwelling into individual flats.
Where a previous covenant has been breached, and if that breach is less than 20 years old, there may be a risk of the beneficiary property owner attempting to enforce the covenant. Indemnity insurance covers the cost of defending such a claim.
‘Flying freehold’ is when a section of your property extends above or below a neighbouring property: for instance a balcony that protrudes over your neighbour’s flat. Maintenance of it might require access onto your neighbouring property from time to time or you may be dependent on your neighbour to ensure structural support.
It’s not always clear from the title documents whether you have the right of access along with the other rights necessary to keep this section of your property in good condition, so a flying freehold indemnity policy can cover you for this.
Ideally, when you are buying a leasehold title, it will be classed by the Land Registry as absolute leasehold, which means it cannot be challenged.
However, some leasehold properties are classed as having good leasehold titles. This means that whoever registered the property was able to prove title to the lease, but was unable to provide deeds showing that the landlord (the freeholder) was entitled to actually grant that lease to them.
Good leasehold title insurance covers you in the event that someone attempts to claim that no valid lease was originally granted.
The cost of an indemnity policy depends on the type of insurance you need, and on the value of the policy. For example, policies for good leasehold title cover start at around £20, while building regulation indemnity insurance can be in the region of a couple of hundred pounds.
It is important to note that it is often possible to negotiate with the seller to get them to pay in full or in part for the policy, especially if the need for the policy stems from some failure on their part, such as losing the compliance certificates.
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