Buying a house can come with many costs,
some of which you may not have anticipated. One that often gets forgotten is insurance.
There are
many different types of insurance policy, including Buildings Insurance, which is usually necessary, and Contents Insurance to protect your items. Indemnity insurance is very particular in that it can protect you from losing large amounts of money on problems that may befall you or your property. If issues are discovered with your chosen property, your conveyancing solicitor may recommend you take out indemnity insurance to keep the purchase moving forward with peace of mind.
What is property indemnity insurance?
Homes always come with plenty of documentation- from deeds, to planning permission, to land registry and much more. When purchasing a home, sometimes some of this documentation can get lost, or is not provided to you. Perhaps the previous owner did not fill it out correctly, or maybe a third party contests its legitimacy.
Property indemnity insurance can be taken out to cover the costs of any issues that may arise from such documents, that have now become your responsibility as the owner of the property.
To put it another way: whereas cover like
Buildings Insurance protects against physical problems,
Indemnity Insurance protects against legal ones.
What does it cover?
Indemnity insurance can be taken out to cover you for problems arising from a multitude of different legal circumstances. Here are a few common examples:
Planning permission – if the previous owner has built/started building on the property without (or with incomplete) planning permission you may be penalised by the local authority.
Restrictive Covenant – some properties come with a
restrictive covenant, a set of rules that the owner of the property must follow. This can include what can and can’t be done with the garden and who the property can be sold to. If these rules are broken, a claim may be made against you.
Building regulations – if building work has been carried out without meeting building regulations, or if the paperwork for these regulations is missing/ incomplete, you may need to pay to correct the issue.
Land registry – if land registry has not been carried out properly, or you do not have the relevant documentation, someone may make a claim to your land. There will then be legal fees required to contest this.
Boundaries – if your property is on the boundaries of another person’s land (a common example is a church), you may need to pay contributions towards that property.
Right of access – If some of your property is only accessible via another person’s land, and they do not allow you to access it, you may need to take legal action against them.
The policy you take out will likely pertain to the specific issue you have identified and would like to protect against. For example, Planning Permission Indemnity Insurance.
Do I need it?
While with most insurance policies it is safest to take it out in the event that you need it, Indemnity Insurance should be carefully considered as it may not be necessary. For example, if your property has all its documentation available and up to date, legal problems are very unlikely to arise.
The best course of action is to thoroughly investigate the property before you buy, as you should anyway. Your property survey can help, as well your conveyancing solicitor, but if you can, you should do some independent research on the property as well. For example, find out if it borders on another person’s land or if its land registry is properly completed.
If you do find an issue with your new home, it is important to remember that you may be able to resolve it before you purchase the property, therefore negating the need for indemnity insurance. If trying to fix the issue now is going to hold up your purchase, and therefore effect those in your chain, taking out a policy will be your best option, so that you can fix the issue at a later date.
You should also note that once an indemnity insurance policy is taken out it is tied to the property and not the owners. So, if the previous owners of the property have indemnity insurance, it will be transferred to you when you move in. Make sure there is not already a policy attached to the house before you take a new one out.
What does it cost?
Cost will likely be your biggest concern when considering indemnity insurance. Like other insurance policies however, it is difficult to predict how much indemnity insurance will cost. The price will depend on factors such as your property’s value and what the policy is taken out to cover. For example, church boundary issues are cheaper to cover than building regulations. A typical policy could be anywhere between £20-£500.
Where indemnity insurance differs from other insurance policies, though, is how it is paid. Rather than being paid for in monthly premium, it is paid for in a single one-off payment and should last indefinitely.
Remember that the policy is tied to the house not the owner, so if the previous owner pays for the policy it will be passed on to you. If you wanted, you could try and negotiate with the seller so that they pay for the policy, rather than you. Or you could negotiate each paying half. Just remember to try and approach them in a non-confrontational manner, even if you believe the legal issues are their fault.
Insurance is created to give you peace of mind, and indemnity insurance is no different. A perfect home may have a few complications, and indemnity insurance will let you move ahead with your purchase with no worries. Talk to your conveyancer about whether it’s necessary, they’ll be able to advise you on your individual circumstances.
Updated October 2022 by Jeremy Greer