Do I Need Indemnity Insurance?
What is Indemnity Insurance?
Simply put it is a legal tool whereby DEFECTS in the TITLE or PLANNING problems, to name just two, are effectively made irrelevant. It is not a means to rectify the problems, merely make them, for the most part, harmless to a potential buyer.
If you are being asked to provide it, or advised to demand it, then it is likely that there is a good reason. There a loads of different policies available; from CHANCEL REPAIR to planning and just about everything in between and those are just the standard ones. If your situation is particularly unique then it is entirely possible that one or other of the INSURERS will build a special policy just for you - for a hefty premium.
But What is it for?
Indemnity insurance covers the, often remote, possibility that a third party will come along and try to enforce whatever it is that has been breached. It may be so unlikely that this will happen, because the person is dead and no-one knows who the relatives are or because the covenant was written in 1902 and it is unlikely that anyone actually cares about it anyway, that it makes it laughable that you are even being asked for it but, and this is a big but, conveyancers deal with possibilities every single day. Any risk no matter how remote must be catered for. Consider who would be the first person you would shout at if someone did suddenly appear out of the ether to make you take down your porch?
Is it Just Money for Old Rope?
It would be impossible, and a bit silly, to try to go through each policy available and for me to give you my opinion on the merits of each one. Every situation is different and, although it might seem a bit like sticking a plaster over a leaking pipe, if it gets you moved then it has to be a good thing.
Let's Have a Look at Some of the More Common Policies
The most common policy I came across in 10 years as a senior conveyancer was a restrictive covenent policy. Basically this policy covered (up to the purchase price of the property) the possibility that someone had breached a covenant on their title without either getting consent or having the covenant removed. (I won't go into covenants too much here).
For instance; you buy a house that has a covenant on it which says that you cannot build a conservatory without the consent of the original builder/developer. A couple of years later you whack a lovely posh conservatory on the back - no problem, no-one comes to you and tells you you should have got consent and you forget all about it. Until you want to sell, then your buyers conveyancer raises the point that technically the conservatory should not be there!
You have two choices: try to find the original developer and get retrospective consent (if they are willing to give it and probably after paying a good few hundred pound to them) or get indemnity insurance and make the problem go away in about 5 minutes flat.
The other most common Indemnity Policy I had to deal with was for lack of planning permission and/or building regulation consent. Basically this situation came up whenever someone had done structural works to the property and had not applied to the local authority for the required consent. It doesn't take much to fall the council for a set of guidelines - most of them are also available on the internet but it came up anyway and with alarming regularity!
Unfortunately this is one of the policies that it may be hard to argue your way out of, the Local Authority is always around and it is more likely, although not a definite outcome, that they may discover the works and take enforcement action - if the work was done inside the enforcement period or is below standard.
So what do I do?
First and foremost arm yourself with as much information about whatever policy is being requested. Only with that information can you decided whether the request is valid or a possible delaying tactic.
Finally, rely on your conveyancer. Let them explain the pros and cons to you and listen to their advice. It is only advice and they cannot force you to do anything you don't want to but they do have extensive legal knowledge and experience - you are paying for it so you may as well use it!
