INSURANCE GUIDE
Indemnity Insurance for Property Transactions UK
What property indemnity policies cover, when they are used in conveyancing, and what defects they address.
TL;DR
- Property indemnity insurance covers specific legal defects in a title or property that cannot be resolved before completion.
- Solicitors recommend it when a defect exists but the risk of a claim materialising is low enough to insure rather than resolve.
- Common uses: missing planning permissions, breach of restrictive covenant, absent building regulations consent.
- Policies are typically one-off premium payments that run with the property indefinitely.
What Property Indemnity Insurance Is
Property indemnity insurance covers the buyer and lender against financial loss arising from a specific identified legal defect in the property title or history. Rather than resolving the defect - which may be impossible if the original parties cannot be traced or the limitation period has passed - the parties insure against the risk of the defect causing loss. The policy compensates the insured if the defect is ever enforced or causes financial loss.
Common Defects Covered
Indemnity policies are arranged for a wide range of specific defects including: works carried out without planning permission or building regulations consent; breach of a restrictive covenant affecting the property; missing or defective title deeds; lack of formal right of way or access rights over neighbouring land; chancel repair liability (the obligation to contribute to the repair of a local church chancel); and absence of listed building consent for works to a listed property.
When Solicitors Recommend Indemnity Insurance
Conveyancing solicitors recommend indemnity insurance when a search or investigation reveals a defect that cannot be remedied before exchange but where the practical risk of enforcement is low. Common triggers: a kitchen extension built without building regulations sign-off many years ago; a restrictive covenant that may prevent residential use but has not been enforced for decades; or a right of way that was never formally documented but has been used undisturbed for years. The insurer assesses the specific risk before agreeing to cover it.
How Policies Work
Property indemnity policies are typically single-premium policies paid at or before completion. The premium is calculated on the property value and the specific risk being covered. The policy runs with the property and passes to future owners - the benefit is not lost when the property is sold. The insurer is not notified of the defect's existence if doing so would alert a third party who could enforce; instead, the policy is arranged quietly to protect against future enforcement.
Lender Requirements
Mortgage lenders routinely require property indemnity insurance as a condition of proceeding with the mortgage where a defect is identified in the title report. If the lender's solicitors are satisfied that a specific indemnity policy adequately covers the risk, they will proceed. Without the policy, the lender may withdraw the mortgage offer. Both buyer and lender are typically named as insured parties on the policy.
Disclaimer
This guide is for general information only and does not constitute financial or insurance advice. Kaeltripton.com is not regulated by the FCA. Always read policy documents in full before purchasing cover.
Frequently Asked Questions
Who pays for the indemnity insurance - buyer or seller?
It is negotiable between buyer and seller and depends on which party introduced the defect and the relative bargaining positions. Where the defect was pre-existing and identified in the seller's searches, sellers often pay. In some transactions the cost is shared. Buyers should not simply assume the seller will pay - confirm who is paying as part of the conveyancing negotiation.
Does property indemnity insurance need to be disclosed?
The existence of a policy does need to be disclosed to future buyers on sale. However, the specific defect being insured is sometimes kept confidential from third parties who could enforce it - drawing attention to the defect could prompt enforcement. Your solicitor will advise on the appropriate approach for each specific policy.
How long does a property indemnity policy last?
Property indemnity policies are typically perpetual - they run indefinitely and pass to future owners on sale. They are not annual policies and do not need to be renewed. The one-off premium covers the risk for the life of the policy without further payments.
