A guide to indemnity insurance

Published by Ruth Jackson on 04 April 2017.
Last updated on 04 April 2017

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.

Leave a comment

We are being asked to buy 3

We are being asked to buy 3 indemnities. 1 for church repair on the property we are buying. The other 2 are for an extension we built in 1998 but didn't get the final certificate, we have however, got a letter of comfort from the Council but are still being asked to buy an indemnity. The second is for a garage we had erected in 2008 - because we didn't get any building regs even though we have the paperwork which says we don't need planning permission/regs and we rang the council who told us if it was replacing an existing structure we didn't need it...but on the land registry/deeds it does mention not being able to erect outbuildings!!! What should we do

I am re-mortgaging and the

I am re-mortgaging and the solicior for the mortgage company has said 'We note from the title to your property that there is currently a Rent charge registered against your property which pre-dates The Rent charge Act 1977.
Rent charges originated in the early part of the last century and were a means for builders to develop land without paying a premium to the owner of the Land.

Landowners would sell land to Developers at a reduced capital sum or for no money at all in return for an income from the owners of the new houses and their subsequent owners."

They have said I now need to purchase the indemnity insurance but I've never heard of this and it didn't seem to drop up when I bought the property 2 years ago.
Kim

My uncle bought a restaurant

My uncle bought a restaurant from a couple who had run it as a restaurant 10 years previously. He was a little naive and didn't ask the right questions. 2 years later, he found a buyer but couldn't prove it had the relevant A3 Licence that the seller was asking for. We have delved around and there don't appear to be any planning permissions. He talked to his solicitor who asked him to get indemnity insurance, would you recommend this?

Can anyone recommend where to

Can anyone recommend where to buy building indemnity insurance?

Please let me know where to

Please let me know where to buy Indemnity policy for building

I’ve read with interest the

I’ve read with interest the article in indemnity insurances when buying/selling a home.
Please can you tell me if a building regs indemnity insurance is ‘one policy you covers all’ or if the specific works lacking building regs are listed on the policy?.
Appreciate your soonest reply, help.

Evening Moneywise, I am

Evening Moneywise, I am wondering if you can help/advise ? our solicitor is insisting we purchase an indemnity insurance as our house purchase is being seen as an undervalued transaction at cost to us of 480 pounds.

In October we were in the process of selling our home and buying a property (aa) only for it to fall through due to our buyer pulling out. We had agreed a purchase price of 747k, our lenders surveyor valued the property @ 747k. In December we resold our property and agreed a lower purchase price of 735K on the original property (aa).

We stayed with our original lender, a valuation survey on the property had been actioned in October so it was not necessary to have another valuation. It looks like the 12K difference in purchase prices flagged our sale as an undervalued transaction. It just does not make any sense at all surely house prices fluctuate all the time. Is there anything we can do to challenge the request ?

Thanks

Useful information thank you

Useful information thank you moneywise

Hi, I have been told that the

Hi, I have been told that the deed of the property i am buying does not allow trade or business to be run from the property? Can anyone advice how to overtun this? What indemnity insurance covers from the risk if I run a business from such property? Thanks

We had buyers pull out

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?

We are selling our house and

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,

Can you inform me of a

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

PLease advise----I Have a

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!

Catherine, I'm probably not

Catherine, I'm probably not the best person to reply as I dont really have a clue either but that sounds terrible...
...if you approach the news paper you may get your story heard and sorted?

We are selling our house . It

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

We are being asked for a

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

Can you tell me where to

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!

Can we expect this to be the

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

My builder is not FENSA

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

Hi

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 house

There 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.