During the due diligence process of purchasing a property, your solicitor may uncover issues that could pose future problems or lead to costly financial consequences.
Indemnity insurance serves as a protective policy that covers the financial implications of third-party claims. It plays a crucial role in safeguarding against these risks, as it involves a one-time payment. Moreover, the policy is typically transferrable to future purchasers, ensuring that there are no prolonged delays or increased costs when you decide to sell the property.
What does indemnity insurance cover?
Indemnity insurance serves various purposes, addressing specific risks associated with property ownership.
- Planning Permission: Indemnity insurance may be necessary if alterations are made to the property without proper planning permission or adherence to building regulations.
- Restrictive Covenants: If a property breaches a restrictive covenant—for instance, by having an extension—indemnity insurance can provide protection.
- Good Leasehold Title: This type of insurance safeguards against risks associated with incomplete documentation for leasehold titles, such as undisclosed restrictive covenants or issues related to the landlord’s authority to grant the lease.
- Adverse Possession: Indemnity insurance covers situations where the property holds only possessory title, which can pose challenges for securing lending. It protects against potential losses if someone contests ownership of the land.
- Flying Freeholds: Insurance can address the risks associated with properties where one part of the freehold overhangs or extends beneath another property, ensuring coverage for access-related repair issues.
- Absence of Easement: In cases where access to land requires crossing another property without a formal right of access, indemnity insurance protects against financial losses resulting from this situation.
Who pays for indemnity insurance?
The buyer or seller of the property can opt to pay for an indemnity policy. Typically, if a potential risk is revealed, the buyer’s solicitor may require the seller to cover the cost of indemnity insurance before proceeding. This is because the need for indemnity insurance arises from a property defect that the seller is responsible for addressing.
Do I need indemnity insurance?
Determining whether indemnity insurance is necessary is a crucial step in safeguarding against potential financial losses. While defects may often pose low risks, indemnity insurance offers a cost-effective way to protect against unexpected expenses in the future. It can also prevent transaction delays related to legal defects that would otherwise be costly, time-consuming, or difficult to resolve. Existing indemnity policies should be reviewed to ensure they are adequate, have no significant exclusions, and reflect the current market value of the property.
Despite its benefits, it’s important to understand that indemnity insurance does not resolve the underlying defect—it provides financial protection against associated losses. It’s advisable to discuss whether indemnity insurance is suitable for mitigating the specific risk at hand. For legal advice on indemnity insurance during property transactions, please reach out to one of our specialists at DLS Solicitors.
