What is an Indemnity Policy When Buying or Selling a Property?
If you’re buying or selling a property, your conveyancer may recommend taking out an indemnity policy. While the name sounds technical, an indemnity policy is often a straightforward and cost-effective way to keep your property transaction moving.
At GA Solicitors, our experienced team of residential conveyancing solicitors Plymouth regularly advises clients on indemnity insurance during the buying and selling process. If you’re looking for expert conveyancing in Plymouth, we’ll explain everything in plain English so you know exactly what you’re paying for and why it may be needed.
What is an indemnity policy?
An indemnity policy is a type of insurance that protects a property owner and, in many cases, their mortgage lender against certain legal risks connected to a property.
These policies are commonly used when important paperwork is missing, historical permissions cannot be located, or a legal requirement may not have been followed correctly in the past.
Rather than delaying a sale while the issue is investigated or resolved, an indemnity policy provides financial protection if the problem later causes a loss. This means buyers and sellers can often complete their transaction without unnecessary delays.
An indemnity policy usually involves a one-off payment, made when the property transaction completes. There are no ongoing premiums to pay.
Why might you need an indemnity policy?
During the conveyancing process, your solicitor carries out a range of checks on the property. Occasionally, these investigations uncover an issue that is unlikely to cause a problem but still presents a legal risk.
Instead of stopping the transaction altogether, an indemnity policy can provide reassurance by protecting against certain financial losses if that risk ever becomes a reality.
Your conveyancer may recommend an indemnity policy if, for example:
- Important legal documents cannot be found.
- Previous building work does not have the correct approvals.
- A legal right affecting the property cannot be fully proved.
- There is a historic issue that cannot easily be resolved before completion.
For many buyers and sellers, taking out an indemnity policy is the quickest and most practical solution.
What does an indemnity policy cover?
Every policy is different, so it’s important to read the terms carefully. In general, an indemnity policy covers financial losses directly linked to the specific legal issue identified during the conveyancing process.
Depending on the policy, it may cover:
- The reduction in the property’s value.
- Legal costs involved in defending a claim.
- Compensation or damages awarded by a court.
- The cost of resolving the legal issue, where covered by the policy.
It is important to remember that indemnity insurance only covers the specific risk listed in the policy. It is not a replacement for buildings insurance and does not protect against physical damage or defects within the property.
Your conveyancer will explain exactly what the policy covers before you decide whether to proceed.
Common types of indemnity policies
There are many different indemnity policies available, depending on the issue identified during your property transaction. Some of the most common include:
Absence of Easement Indemnity
An easement is a legal right allowing someone to use part of another person’s land, such as a shared driveway or access path.
If there is uncertainty about whether these rights exist, an absence of easement indemnity policy may protect you against financial loss if access is later challenged. It can also help cover legal costs, compensation and, in some cases, the cost of securing the necessary legal rights.
Restrictive Covenant Indemnity
Some properties are subject to restrictive covenants, which are legal rules limiting how the property can be used or altered.
If previous work may have breached one of these restrictions, a restrictive covenant indemnity policy can provide protection if the covenant is later enforced. Depending on the policy, it may cover legal costs, compensation, the cost of complying with the restriction and any reduction in the property’s value.
Building Regulations Indemnity
If alterations have been made to a property without the correct Building Regulations approval, your solicitor may recommend a Building Regulations indemnity policy.
This policy may provide protection if the local authority takes enforcement action, including covering the cost of required remedial work and any resulting reduction in the property’s value.
However, it will not cover the cost of voluntarily improving the work, replacing structures that need to be removed, or any injury or damage caused by poor workmanship.
Important things to know about indemnity insurance
Before taking out an indemnity policy, there are a few important points to keep in mind.
Most policies become invalid if the underlying issue is disclosed to a third party before completion. For example, contacting the local authority or a neighbour to ask about the problem could prevent the insurer from providing cover.
An indemnity policy also cannot be arranged if there is already an ongoing dispute relating to the issue.
If you ever receive a letter, notice or legal correspondence relating to the matter covered by the policy, you should seek legal advice immediately before responding. Taking action without first consulting your solicitor could affect your ability to make a successful claim.
Expert conveyancing advice from solicitors in Plymouth
Buying or selling a property can feel overwhelming, particularly when unexpected legal issues arise. The good news is that an indemnity policy is often a simple solution that allows your transaction to continue with confidence.
At GA Solicitors, our experienced team provides straightforward, practical advice throughout every stage of the conveyancing process. Whether you’re a first-time buyer, moving home or purchasing an investment property, our residential conveyancing solicitors Plymouth are here to guide you.
If you’re looking for trusted solicitors in Plymouth with expertise in conveyancing, get in touch with our friendly team today. Call 01752 203500 or email enquiries@GAsolictors.com and we’ll explain your options clearly, answer your questions and help you move home with confidence.
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