When buying and selling, you may come across the term “indemnity insurance”. You may not understand what this means or if you need it. This blog will provide you with further information on what indemnity insurance is.
What is an indemnity policy?
An indemnity policy is used in property transactions to offer protection against cost that might come up related to certain types of defects or more ambiguous legal issues. It is vital to remember that the policies do not cover things such as repairs or replacements. For example, if you installed a new boiler and there was no installation certificate for this so the seller had to obtain indemnity insurance for this. The policy would cover you if a claim was made against you. It would not cover the cost of getting the right certificate nor would it cover any additional work that would need to be done.
Who pays for indemnity insurance?
The seller and buyer could both pay for the indemnity policy. In most cases, we see that sellers pay for indemnity policies. The insurance is a one-off payment and in most cases they last in perpetuity
Indemnity polices can allow sales to go through quickly at a smaller expense compared rectifying the defect. In some cases, you may feel a policy may not be necessary. You should rely on your solicitor’s advice whether one is necessary or not. Some examples below:
- Building regulation and planning policies – whether a buyer requires one depends on when the works were carried out. Most of the time, indemnity policies are sought for work that was carried out many years ago which is outside of the enforcement period of the council. A seller could argue that a policy is not required.
- Restrictive covenant policies – Advice will vary here. There may be a case where the deed is extremely old so the risk of somebody enforcing the covenant is minimal. A buyer still may want the cover for extra protection.
How much is indemnity insurance?
It is a one-off payment and on average is a couple of hundred pounds depending on the policy and the value of the property.
Overall, indemnity policies are often used to speed up property transactions and to insure against problems that will cause the mortgage lender not to lend. It should be noted that indemnities are not a concrete solution from a legal perspective. Essentially, indemnities just insure the issue rather than fix it. If you proceed on a purchase or a remortgage with an indemnity, then there are consideration as to whether a future buyer or lender would accept an indemnity.
At Attwells Solicitors, we can provide advice on property matters. Should you wish to query indemnities or other matters then please call us on 0207 772 9898.