A guide to indemnity insurance

4 April 2017
Image

If you are buying or selling a house, you’ve probably heard of indemnity insurance – it is becoming an increasing feature of housing transactions. But before you hand over hundreds of pounds for policies, find out what it is and if you really need it.

What is indemnity insurance?

Indemnity insurance is a type of protection purchased during housing transactions. It is a one-off payment for a policy that then lasts forever.

It is used to offer protection if there is a potential problem with the property that could result in local council action or legal problems in the future.

“Legal indemnity insurance is obtained in order to offer protection to a buyer (and a lender) where there is a defect in the title, which cannot be resolved,” says Sarah Ryan, head of conveyancing at Co-op. “Legal indemnity insurance does not remedy the insured defect, but merely offers financial compensation should a claim be brought in the future.”

Typical reasons for taking out indemnity insurance include to cover missing building regulation certificates, planning permission issues or missing professional installation certificates for fires or windows.

Indemnity insurance is often associated with older properties, where historic rights are still on the deeds.

“The right of Mrs Miggins to draw water from a well may have been essential back in 1860,but it might be a bit inconvenient if her heirs and successors could still wander into your garden with a bucket today,” says Henry Pryor, a property buying agent. In this example, you would purchase an indemnity policy to protect yourself from future claims from the Miggins family to access water on your land.

 

How much do policies cost?

The price of an indemnity policy can vary hugely depending on what it is protecting you against. The one-off cost of a policy to make up for a lack of FENSA certificates for new windows could be as little as £20, but policies covering missing building work certificates can cost several hundreds.

Unfortunately, you can’t quibble about the price, or search for a better offer on a comparison website; indemnity insurance is only offered via specialist providers, so your solicitor will find out the cost for you.

Can policies be passed on when a house is sold?

Unlike most insurance policies, indemnity insurance is tied to the property, not to the owner, so a policy should only need to be purchased once and then it can be simply handed on to the new owner when you sell the property.

The only issue might be if you need to increase the cover to reflect an increase in the value of the property.

Who should pay for the policy?

This can be a real bone of contention in a house sale. Buyers often feel the vendor should cover the cost as they cannot provide the necessary paperwork. But sellers feel as the policy will benefit the buyer it is up to the buyer to pay for it.

“It is usual practice for a seller to pay the premium. However, this can be negotiated,” says Ms Ryan. “If the seller does pay, then the buyer will be responsible for any increased premium should they sell in the future.”

Is indemnity insurance always needed?

No. If your solicitor suggests buying an indemnity policy, think twice before agreeing. In the middle of a housing transaction a couple of hundred pounds can feel like nothing when the rest of the time you are dealing in tens of thousands, but you may find you’ve handed over money for nothing.

I recently sold a property where my solicitor, after a lengthy email conversation with the buyer’s solicitor, advised me to pay £200 for a policy to cover a lack of certificates for building regulations and planning permission.

It was only when I demanded more information that it came to light that the planning permission was for an extension built in the 1970s, well before any legal requirement for building regulations and long after the limit for local council enforcement on lack of planning permission. Plus, a bit of digging revealed that planning permission had been granted.

 

What should I do if my solicitor advises me topurchase a policy?

 “I act for both sellers and buyers and often come across situations in which my clients are asked to pay for indemnity insurance to address a defect with either a sale or purchase of a home,” says David Pett, director of MJP Conveyancing. “In the majority of these cases, there is no justification for incurring the cost of establishing this insurance cover.”

Mr Pett advises to always look into whether an alternative free solution is possible. “A good example is where a valid FENSA certificate for the installation of a door or window exists, but cannot be produced to the buyer. There are a number of conveyancers who will advise their client to insist on indemnity insurance even though the existence of the FENSA is evidenced in the result of a local authority search.

“My advice to homebuyers when indemnity insurance is recommended is to challenge the need and ask whether there is an alternative fix.”

Why are indemnity policies more common now?

“Time was when one could take a view on the fact that the seller (and consequently the buyer) doesn’t appear to own the physical land that the driveway to the property runs across. When the house cost 500 guineas, it perhaps wasn’t quite so important, but if you are spending a million pounds you would like to know that you don’t need a helicopter to access your new home,” says Mr Pryor. “An indemnity policy usually costs less than a thousand pounds and allows you to sleep at night.”

But it isn’t just the rising cost of property that has meant buyers are more determined to avoid future problems.

Another reason for the rise in indemnity policies is the speed of housing transactions. In a hot property market, that period between your offer being accepted and contracts being exchanged is nerve-wracking for buyers and sellers. As a result, it is quicker to fork out for an indemnity policy than wait for missing certifi cates to be found or planning queries resolved.

“In theory, indemnity insurance should only be used as a last resort. However, in practice it often provides a quick and low-cost alternative to the work required to correct a defect,” says Mr Ryan.

In reply to by anonymous_stub (not verified)

We are selling our house and have found out we have no Fensa certificate, our solicitor as said wewill need to get an indemnity insurance, can you advise me if this is needed and how much will this cost.? Thanks,

In reply to by anonymous_stub (not verified)

PLease advise----I Have a terrible case where mhy solicitor waw just aclerk many years gao, and did a mass of strange bad things and put the wrong name on my title. My deeds were stolen and forged but had the wrong name on, but Land Registry STILL TRANSFERED MY HOUSE TO THEM WITH no ID asked for AND REFUSED TO RECTIFY EVEN WITH A BARRISTER'S REPORT . Surely this cannot be legal so why are they being so harsh on me as thye had also take two other detached houses off m e ,and all my money. I am 83 and compleytely alone so it was east for htem to dothis I had lived too long but now cannot get any hel[p at all.I ak sick of being told to rihngt th CAB ot Age concern as they just tell you to get a solicitor,and I foudn that NOBODY did anythihg after taking your money up front Mostly they say they are too busy etc, but they only want medical claims against the NHS or care homes. The Police refsued to help or charge them with the crime that is official. and also have been extremely nasty to me to stop me getting anywhere . I am very quiet and timid and now lost all hope, so all the twaddle about protectng old and vulnerable poeple is just raelly annoying and hurtful aseveryone thkns all thes peopel will sort it out yet if you did the smallest thing re policitacl corresctness etc or said you didn'[t like somthing----CHARGED AND I bet you do not show this comment or replt!

In reply to by anonymous_stub (not verified)

Can anyone recommend where to buy building indemnity insurance?

In reply to by anonymous_stub (not verified)

I have had the miss fortune of a hairdresser ruining my hair the defendants insurers are not offering policy indemnity. Please can you explain why this could happen and where it leaves me. I have lost a lot of my hair and my scalps sore, I had beautiful hair before this...Please can you give me any help...

In reply to by anonymous_stub (not verified)

My son and daughter in law are buying a converted pub. The mortgage company have asked for an indemnity insurance and the vendor (developers) have produced a quote for 6.5 thousand pounds for a policy. They have asked my son to contribute to this - this seems far too much money for a policy. Can you advise please?Many thanksS Kemp

In reply to by anonymous_stub (not verified)

We have made an offer to buy a property and are looking to exchange. Subsequent to the survey we have discovered that the owners have built a large rear kitchen extension over a public sewer in 2016 (i.e post the change in the law to transfer existing private sewers and lateral drains in England connected to the public sewer before 1 July 2011 to be public drains from 1 October 2011). without obtaining build over consent from the water authority (Thames Water). We have asked them to apply for retrospective build over consent but they are refusing. The sellers solicitors have offered an indemnity policy which covers "all financial assistance for enforcement" of the lack of build over consent from the water authority. When we have requested clarificationon what this would actually cover we are being told "everything" but advice from my solicitor differs. We are being told that if we don't agree to the indemnity policy they will put the property back onto the market. So the questions I have are fundamentally:a) What is the typical duration of the indemnity coverb) Are we able to pass the indemnity onto a subsequent buyer if we sell the propertyc) Does a typical lack of build over consent indemnity policy cover any legal costs incurred in an enforcement action by the water authorityd) Does a typical lack of build over consent indemnity policy cover all damage incurred by the water authority in accessing the property to assess/make repairs to the sewere) Does a typical lack of build over consent indemnity policy cover all damage incurred by the water authority if damaging the property whilst making repairs to the sewerf) If the water authority raises the fact that there is no build over consent (as I know that if you contact the water authority and make them aware of the lack of build over consent this invalidates the indemnity insurance) and then subsequently refuses to grant retrospective build over consent would the indemnity cover the costs of taking down the kitchen extension?g) If the water authority raises the fact that there is no build over consent and then subsequently refuses to grant retrospective build over consent would the indemnity cover the costs of rebuilding the kitchen extension away from the existing sewer?h) If the water authority raises the fact that there is no build over consent and then subsequently refuses to grant retrospective build over consent would the indemnity cover the costs of diverting the public sewer from its current location to allow the kitchen extension to stay in place?i) If the water authority raises the fact that there is no build over consent and then subsequently refuses to grant retrospective build over consent would the indemnity cover the costs of rebuilding the kitchen extension away from the diverted sewer if removal of the existing kitchen for access to divert the sewer was required ?j) If the water authority raises the fact that there is no build over consent and then subsequently refuses to grant retrospective build over consent and the kitchen needs to be taken down would the indemnity cover the costs of alternativeaccommodation / subsidence costs during the building works?k) If the water authority raises the fact that there is no build over consent and then subsequently refuses to grant retrospective build over consent and the kitchen needs to be taken down would the indemnity cover any compensation for disruptionand loss of enjoyment during the building works?l) If the water authority raises the fact that there is no build over consent and then subsequently refuses to grant retrospective build over consent and the kitchen needs to be rebuilt would the indemnity cover the costs of survey/architectplans/ permissions etc for the rebuild?m) If the water authority raises the fact that there is no build over consent and then subsequently refuses to grant retrospective build over consent and the kitchen needs to be taken down and not rebuilt to its current specifications wouldthe indemnity cover the reduction in the value of the property?

In reply to by Christine Campbell (not verified)

Can you inform me of a company who give an indemnity insurance for replacement windows.

In reply to by anonymous_stub (not verified)

Hi we have sold our house the new buyers are requesting indemnity insurance from us because we has the Chimney stack taken down New tiles and complete lining replaced does this need to be purchased

In reply to by anonymous_stub (not verified)

Hi, I am in the process of buying a house and need a but if help please! The house I am buying is marketed as a 3 bedroom home, of which one bedroom is the loft conversion. The property has also has a single storey extension added onto the kitchen.When having a surveyor round he stated there was no building regs completed for either building works. He also stated the loft conversion doesn’t comply with building regulations (due to fire safety). Previous owners have taken out an indemnity policy on the building works in the absence of any certification. In this instance should the property by classified as a 3 bedroom home, or a 2 bedroom home with an extra room? Also the surveyor is going to value it at less than the purchase price due to this.Has anybody got any advice on this situation?

In reply to by anonymous_stub (not verified)

This is vital information that I have been searching for to help me with this problem. Thanks!

In reply to by anonymous_stub (not verified)

Can someone please advise me where I can get indemnity insurance for windows.

In reply to by anonymous_stub (not verified)

Can someone please advise me where I can get indemnity insurance for windows.

In reply to by anonymous_stub (not verified)

Hi I am in the process of buying a retirement flat in a purpose built block. It will be a cash sale if all goes through ok. I have been told by friends that I have no real need to have any searches done or a survey. I have told my solicitor that I will not require these but he has said that I should consider having the searches done, if not that then to get an indemnity policy. What do you think I should do. Thanks in advance.

In reply to by anonymous_stub (not verified)

Hi I am wondering if anybody can give me any advice.I am purchasing a property, i have my mortgage offer and the searches have come back all well.So my situation is the property i am purchasing is a house.The downstairs of the property got changed to a commercial use property, so it was a shop however the upstairs remained residential. This was before the current seller bought the houseThere has been no structual work carried out on the house, So the new seller who bought the property a year ago, informed the valuation office and the council of the use changing back to residential.I have seen proof from the local council that the property is residential and the valuation office.Also my solicitor has recieved a letter from the planning department stating that the property is wholly residential.However this is not enough for my solicitor and he wants me to get this indemnity insurance, as there is no where that states the buyer has purchased planning permission to change the use back to residential, however the seller is saying it is not need as thats what the local council and dvo have told him.I want to know if there is proof that the council tax band is a and the property is fully residential.and the DVO has confirmed that the property is residential and business rates have been deleted.Do you think there is a need for an indemnity policy. The solicitors are awaiting a quote for this policy which is taking a long time is this normal when taking out an indemnity policy do insurers take a long time for quotes?Can someone advise me please? i am a first time buyer.

In reply to by anonymous_stub (not verified)

My builder is not FENSA registered for windows I've recently had replaced. Please can you advise me where I can buy indemnity insurance? Thank you

In reply to by anonymous_stub (not verified)

Can we expect this to be the next insurance misselling scandal in 10 years time?

In reply to by anonymous_stub (not verified)

Can you tell me where to purchase indemnity insurance for our windows please? I cannot seem to find a company..or does our solicitor do this. We can't find a FENSA certificate for the windows..I've checked on-line help!

In reply to by anonymous_stub (not verified)

We are being asked for a FENSA certificate for windows which were already installed when we bought our flat in 2006. However, we do not have this paperwork and are now being asked to purchase an Indemnity Insurance for the windows before we can complete on the sale of our flat. Can you please help with companies who provide this cover. Many thanks, Lynn

In reply to by anonymous_stub (not verified)

We are selling our house . It was built in 1960 . In 2000 we had a single sorey extension built . In the Land Registry it states that I should first contact the builder , in this case Laing Homes . I di not do this because I was unaware . My buyers are asking me to buy an Indemnity Insurance for them even though ti has been ascertained that there is slim to zero chance of any retrospective action being taken . John Laing Homes were taken over by Taylor Wimpey Homes in 2002

In reply to by anonymous_stub (not verified)

We had buyers pull out because of no certified copy of our transfer deeds. We have a copy but not signed. Land registry have copies of all other relevant certificates but not this one. We bought 19 years ago when the house was new. The builders couldn't help us the solicitors we used at the time have no kept copies. The building society we had also have no copies. Land registry say only a indemnity policy would do but add that not everyone accepts these as our last buyers didn't. Can we have the unsigned copy we have in our possession signed somehow? & who can do this if possible. Otherwise what other ideas could you suggest please?

Add new comment