News & Views

Indemnity Insurance Policies de-mystified

As part of the due diligence process, your lawyer will investigate the title to the property held with the Land Registry, where registered, when the property is either being sold or leased.  This will include looking at physical alterations that have been carried out to the property and checking those against records held with the Local Council’s Planning Authority and Building Control Department.

A buyer or prospective tenant under a lease would need to establish whether the seller is legally able to transfer the property and that all necessary consents have been obtained.

Where there are defects that would adversely affect the buyer’s interest then they will need to be resolved and possibly disclosed to the Lender before releasing security.

A defect is a matter that negatively affects the property and some examples are as follows: –

  • Where insufficient Planning Permission or Building Regulation Consent has been obtained and a lack of Final Building Control Completion Certificate issued on completion of works. This can include lack of Conservation Area Consent or lack of Listed Building Consent.
  • Title documents not being available which may contain covenants and easements affecting the property of which are now unknown, and the Land Registry just does not hold copies.
  • Easement or rights benefiting the property which are not contained within the title, for example, rights of way, rights to use utilities or rights to enter on to third party land for a right of way or access to utilities which a seller has had the benefit of but cannot document legally. Armed with a sworn Statutory Declaration indemnity insurance may be obtained in the absence of an approach to the Land Registry for an adverse possession claim or prescriptive right of way.
  • A title covenant which will be breached preventing a specified use or development being carried out.
  • The title indemnity policy is only available in respect of a title defect to protect the owner of the property from loss which might arise from the defect, for example, a reduction in value of the property or paying compensation for damages. The policy does not remedy the title defect it just provides financial compensation in the event the defect causes actual loss subject to the limit of the indemnity stated on the policy.  The amount is usually the value of the property in question, the mortgage being obtained or the gross development value of that site.  The policies are usually always stated as successors in title policies and therefore future owners, lenders, licensees or tenants will have the benefit of such policies without the need of notification to the insurer.
  • When obtaining an indemnity insurance quote, the insurer may raise certain items that need to be satisfied and add to the policy certain conditions, for example to provide planning documentation, enquire with the Council as to objections during the planning process, swear a Statutory Declaration to confirm use of the right of way or not to make any alterations to the property for at least a twelve month period.

An indemnity policy is a very good way of allowing us to move forward with a simple purchase of matters without such there would be invariable many stalemate positions where one party could not proceed.

For more information please contact Caroline Vernon or the residential property team.

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