What is an Indemnity Policy and Do I Need One?

An indemnity policy is a type of insurance that protects buyers and lenders against legal risks in UK property transactions. This insurance covers potential financial losses and protects against title defects, missing documents, or similar legal issues. It’s commonly used when a legal issue cannot be resolved quickly but the transaction is still expected to proceed without delay.

See what our customers have to say about us

What is an indemnity policy? 

An indemnity policy is an insurance product that provides protection against possible financial loss from a legal issue affecting a property. It allows the property transaction to proceed quickly, without extra costs from a detailed investigation into a property’s underlying risk or defect.  

As a buyer, your conveyancer’s role is to conduct fact-finding on your behalf. This includes investigating the property title for any ownership issues, conducting third-party searches, and requesting information directly from the seller’s solicitors. 

It ensures you are fully aware of the responsibilities and liabilities that come with your property, so you are not left blindsided by the costs of something that happened to the property in the past. 

However, sometimes certain ‘grey areas’ remain, such as: 

• Missing building regulation certificates 

• Historic breaches of restrictive covenants 

• Unclear rights of access (easements) 

• Unregistered land or title defects 

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. 

Instead of fixing the issue, the policy will protect you financially in case that issue will cause problems later on. 

What does an indemnity policy cover? 

Indemnity policies protect you against costs that might arise from legal risks tied to a property. It does not fix the issue itself. Instead, they cover legal costs, compensation claims, or enforcement action from third parties or authorities. 

This could include: 

• Title defects 

• Missing planning permission or building regulations 

• Breaches of restrictive covenants 

• Lack of access rights (easements) 

• Flying freehold risks 

• Local authority searches 

While it protects against financial losses, it generally won’t cover the costs of fixing the underlying problem (e.g., corrective work or physical repairs). 

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. 

Why do you need an indemnity policy? 

An indemnity policy is necessary if a property transaction has a legal issue that cannot be resolved quickly or easily before completion, but delaying would create unnecessary risk, stress, or cost to the buyer or seller.  

In simple terms, if there’s an issue that can be fixed quickly, fix it. If it cannot be resolved immediately, get an indemnity policy so you’re protected while things keep moving. 

Conveyancers generally recommend taking out an indemnity policy when there is no easy or practical way of fixing a particular issue. Most mortgage lenders might also insist and put this as a condition of the loan if they find an issue after a property valuation. 

The types of indemnity policy 

Common types of indemnity cover different legal risks. Here are the most frequently encountered policies in residential conveyancing: 

Search indemnity cover 

If waiting for a local authority search will significantly delay everything, a local search indemnity policy might be appropriate. This policy covers the risk that something negatively affecting the property’s value would otherwise have been revealed in the search results. 

However, this is only suitable in specific circumstances and not always approved by lenders. Your conveyancer will advise you if it can apply in your specific transaction. 

Planning permissions and building regulations cover 

This covers situations where 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 legal action by the local authority for a breach of planning permission or building regulations. 

It’s common for older properties and extended homes where historic documents have been lost or were not properly recorded. 

Absence of easement cover 

If the only way possible to access part of your property (drains, for example) is by crossing into a neighbour’s 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 an easement policy means you will cover any costs if this access is challenged. 

Adverse possession cover 

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 12 years, someone else may still be able to take the land if they can show a stronger claim of ownership. 

If someone makes such a claim, an indemnity policy covers the costs of defending it. 

Restrictive covenant cover 

A ‘restrictive covenant’ is a private agreement between property owners, in which one party agrees not to do something for the benefit of another. Some examples include agreeing not to extend the property or not to 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 cover 

‘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 them 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. 

Good leasehold title cover 

Good leasehold title insurance covers you in the event that someone attempts to claim that no valid lease was originally granted. With the current changes brought about by the Leashold Reform 2024, this protection may be necessary to ensure a smooth leasehold property transaction. 

Ideally, when you are buying a leasehold title, it will be classed by the Land Registry as an absolute leasehold, which means it cannot be challenged. 

However, some leasehold properties are considered to have 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. 

How much does an indemnity policy cost? 

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 cost £50 to £300. 

It is important to note that it is often possible to negotiate with the seller to have them pay, in whole or in part, for the policy, especially if the need for the policy stems from a failure on their part, such as losing the compliance certificates. 

For more information on all aspects of conveyancing, head over to our information hub. You can meet our team of conveyancers here. Get in touch today to get a conveyancing quote within minutes.