What is an indemnity policy?
Whether you be buying or selling a property, it is not uncommon for the role of indemnity policies to become apparent within your transaction. An indemnity policy is a form of insurance, providing an indemnity, should a certain event occur. Such policies can be used to cover all kinds of property related aspects, for example:
- Lack of Planning Permission/Building Regulations Approval being sought: Where works have been carried out that have no related evidence of planning or building regulations compliance, a policy can be incepted to cover the new owner in respect of potential enforcement action and remedial works, should the present works be in breach of planning or building regulations.
- Absence of Easement Insurance: For example, where a property is being purchased that requires access over a strip of land belonging to another person, and no legal right to cross over such land exist within the title deeds, an indemnity policy may be incepted to cover in the event of court action on the matter, which could result in costly fees.
- Contaminated Land Insurance: For example, the search results have advised that there is a risk at the property in terms of land contamination. An indemnity policy may be incepted to cover against this risk as, should there be a clean up required, the same can be extremely costly, for which the policy would aid relief.
Our team would point out that indemnity policies should be used as a last resort as, if an identified risk can be rectified, it should be, to avoid any form of action in the first place. The same are, however, used on a daily basis by our conveyancers who will fully explain the policy to you, and the implications of inception, before placing any such policy on risk.
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Examples - Selling a Property
Restrictive Covenant: Upon perusing a Contract pack, provided by your solicitors in Longridge, the solicitor acting for a buyer of your property may enquire as to whether any breaches of covenant, contained within the Title to the property, have been breached. Restrictive covenants are legally binding restrictions on the property which must be adhered to. For example, there may be a covenant on the property restricting any form of trade or business being carried out, however, you have been operating business at the property, which is a breach of covenant. Your property solicitors Preston would have to disclose this to the buyer’s solicitor, whom would then request indemnity insurance to be put in place to cover this breach and ensure the buyer is not affected by the same.
Planning Permission/Building Regulations Insurance: Again, if there have been any works carried out at the property, the buyer’s solicitor would request, from your property solicitors in Preston, all documentation which relates to the same. This would include the relevant Planning Permission, if required, together with the relevant Building Regulations Compliance Certificate. If you cannot provide these to your Preston law firm, it is likely that indemnity insurance will be required. In the event that there were ever any issues with the works, the Building Regulations Compliance may provide some form of Guarantee or Warranty, therefore, if this is not available, the buyer would be at a disadvantage, thus highlighting the need for insurance to be put in place.
Examples - Buying a Property
Chancel: For historical reasons, certain properties in certain parishes could be under an obligation to pay the cost of repairing a local church in that area. If the property is found to be in an affected area, the cost of repairing the local chancel can be quite significant. The recent Aston Cantlow ~V~ Wallbank case illustrated that the cost of repairs can potentially be hundreds of thousands of pounds, judgement was made here for £256,000.00 with legal costs of £250,000.00. In light of this, and, in order to protect you against any liability to make such contributions to any nearby churches, your solicitors in Longridge would purchase a chancel liability insurance policy on your behalf.
Contaminated land: As part of the conveyancing process, your solicitors in Longridge will review the results of your searches. If, for example, the results of the environmental report reveal, to your property solicitors in Preston, a potential risk of contaminated land at the property, your Preston law firm would recommend an indemnity insurance policy to be put in place to cover against this risk. The cost of clean up for sites that are contaminated can be vast, therefore, a policy to cover against the same would always be recommended by your solicitors in Longridge. It may be possible to recover costs of the policy from the seller’s solicitor, however, this would obviously be a negotiation point.
As you can see, indemnity insurance policies can cover a wide range of aspects about a property, and can be relevant in both sale and purchase transactions, as well as commercial matters. There would also be a fee payable for the policies which, again, can massively vary, dependent on the type of policy and the value of the property being covered.
For more information on indemnity insurance, or any other conveyacing query, contact MG Legal, your solicitors in Preston, Lancaster and Longridge, today at enquiries@mglegal.co.uk. Our property solicitors Preston can offer friendly and honest advice to ensure the conveyancing process runs as smoothly as possible for you.
