Fact 13. Indemnity Policy – what is it for in Conveyancing?
It covers defects or issues not discovered during searches but discovered after completion, protecting your investment.
Most buyers assume that once the legal searches and inspections are done, everything about the property has been fully checked and confirmed. In most cases, that’s true. However, there are certain situations where unexpected legal or practical issues can come to light after completion – and this is exactly where indemnity insurance becomes important.
An indemnity policy in conveyancing is a type of legal insurance that protects both the buyer and sometimes the lender from financial loss or legal costs arising from specific defects or issues relating to the property. It doesn’t fix the problem, but it ensures that if someone makes a claim or the defect causes financial damage, the costs are covered.
These policies are a vital part of modern conveyancing practice, especially when buyers want to proceed quickly and avoid costly delays while minor title or legal concerns are investigated further.
What is an indemnity policy in property transactions?
An indemnity policy is a one-off insurance policy taken out either by the buyer or the seller during the conveyancing process. Its purpose is to protect against future losses connected to a known legal risk or defect which cannot easily or quickly be resolved before completion.
Common examples include missing rights of way documentation, breaches of restrictive covenants, lack of evidence for historical consents, or missing deeds. Instead of requiring lengthy negotiations or rectifications that could delay the purchase, a conveyancer might recommend purchasing an indemnity policy to provide financial protection against future enforcement or investigation of the defect.
Once purchased, the policy lasts indefinitely, covering not just the buyer but also their lenders and future owners of the property.
When and why indemnity insurance is used
Conveyancers will only suggest an indemnity policy where there is a specific, identifiable issue. It is not a substitute for proper due diligence or searches, but rather a way to manage a known risk where resolving the issue directly isn’t viable.
Situations where indemnity insurance may be required:
Missing building regulation approval or completion certificates for structural alterations.
Absent evidence of planning permission for extensions or conversions.
Missing deeds or documents proving legal rights such as access, drainage, or water supply.
Breach of a restrictive covenant where no consent was obtained.
Unknown or missing easements affecting the property.
Chancel repair liability, more common in older rural parishes.
Lack of a proper landlord’s consent for leasehold alterations.
Non-compliance with historical gas or electrical safety certification requirements.
For buyers and lenders, it offers reassurance that such issues won’t lead to unexpected legal battles or financial loss later.
How an indemnity policy protects your investment
Without an indemnity policy, buyers could face problems discovered post-completion that are expensive to fix or could even make the property difficult to sell in the future. For example, if a local authority or other third party later challenges unapproved building work or enforces a restrictive covenant breach, costs could run into thousands.
With a properly arranged indemnity policy, the insurer covers:
The cost of defending a legal claim.
Any settlement, damages, or compensation owed if a claim is upheld.
The cost of restoring the property or obtaining retrospective approvals if ordered.
Legal expenses directly arising from the issue covered.
It’s worth noting that most indemnity policies have strict conditions: they usually prohibit contacting third parties about the defect (for example, the local council or adjoining landowners), as doing so might invalidate the policy. Your conveyancer will advise on how to remain compliant.
Types of indemnity policies in conveyancing
Indemnity policies come in many forms, each tailored to a specific risk. Here are the most common ones home buyers encounter:
Lack of building regulations approval insurance
Covers situations where construction or alterations, such as loft conversions, extensions, or structural changes, were made without recorded approval. Protects against enforcement by the local authority.Missing planning permission insurance
Provides cover where works requiring formal planning consent lack evidence of approval. Applies to changes such as garage conversions or conservatories.Restrictive covenant indemnity insurance
Protects the owner if someone attempts to enforce an old covenant prohibiting certain uses of the land, such as building extensions, running a business, or altering the property’s external appearance.Absence of easement insurance
Used when there’s no documented right of way, right of access, or right to use drains or cables, even if those services have been used for years.Chancel repair liability insurance
Covers potential liability to contribute to the cost of repairing the local parish church roof – a rare but still legally enforceable obligation on certain older properties.Insolvency act indemnity insurance
Applies when a property is transferred for less than market value, especially between family members. Protects lenders and future buyers from later claims that the transaction was intended to defraud creditors.Search indemnity
Sometimes used when a buyer wants to proceed without waiting for full search results, helping transactions complete quickly while still managing potential risk from missing local search data.
Who arranges and pays for the policy?
Typically, the conveyancer will identify when insurance is necessary and liaise with an insurer or broker to source an appropriate policy.
Payment can fall to either the buyer or the seller, depending on who benefits most or who initially caused the risk. For example:
If a defect stems from something the seller did (such as missing consent for an extension they carried out), it’s common for the seller to cover the insurance cost.
If the issue benefits the buyer, such as choosing to skip certain searches for speed, the buyer may pay.
Premiums are usually quite modest compared with the protection offered. They can range from £30 to £300 for standard residential issues, though more complex commercial or development-related defects can cost more.
How long does indemnity insurance last?
One of the main advantages of indemnity insurance is its longevity. The policy remains in force indefinitely and continues to protect future owners automatically, as long as no disqualifying actions occur (like contacting authorities about the issue).
This continuity adds reassurance not just for homeowners, but also for mortgage lenders who expect security for their loan to be unaffected by historic title problems.
Limitations of indemnity policies
While helpful, indemnity insurance is not a “magic fix.” It has clear boundaries that buyers should understand.
An indemnity policy does not:
Rectify the actual issue; it only insures against loss arising from it.
Offer cover if you knowingly breach regulations or laws.
Protect against all future risks, only the specific defect listed in the policy.
Allow you to negotiate or admit liability to any third party without consent from the insurer.
That’s why thorough legal advice and understanding the exact wording of the policy are crucial before relying on it.
The role of the conveyancer in arranging protection
Your conveyancer’s expertise ensures that any recommendation for indemnity insurance is appropriate, cost-effective, and properly drafted.
Key steps your conveyancer takes include:
Identifying the legal defect that gives rise to risk.
Confirming the issue cannot be resolved in time or at reasonable expense.
Obtaining quotes from trusted indemnity insurers.
Reviewing the policy terms to ensure lender requirements are met.
Advising the client on restrictions and compliance obligations.
If the buyer’s lender requires specific wording or evidence of cover, the conveyancer ensures all documentation is forwarded before funds are released.
Real-world examples of indemnity insurance use
Example 1: Missing building regulation certificate
A homeowner discovers there’s no record of building control approval for a loft conversion built by the previous owner ten years earlier. While the risk of enforcement is low, the lender requires indemnity insurance for security. The policy costs around £50 and protects the lender and owner for the lifetime of ownership.
Example 2: Restrictive covenant breach
A property built in the 1920s has a covenant forbidding extensions. A later owner added a side extension without consent. Rather than trying to contact the original landowner (which could void cover), the seller buys restrictive covenant indemnity insurance to reassure the buyer and lender.
Example 3: Absence of easement
A rural cottage has long used a private lane, but no formal right of way appears in the title. The conveyancer recommends an absence of easement policy to cover potential challenges from neighbouring landowners.
In all three scenarios, indemnity insurance prevents drawn-out title rectification and allows transactions to proceed seamlessly.
Why lenders require indemnity cover
Mortgage lenders are highly cautious when it comes to defective title or missing documentation. They depend on the property’s legal security matching its market value. If defects exist without indemnity protection, the lender may refuse to release funds or withdraw the mortgage offer.
An indemnity policy:
Provides reassurance that the lender’s interest remains protected despite legal imperfections.
Ensures future marketability of the property if repossession or sale is ever required.
Demonstrates professional conveyancing due diligence.
For this reason, lenders often list accepted indemnity insurers in their lending guidance notes.
Can indemnity policies be transferred?
Yes, most indemnity policies automatically continue to benefit future owners of the property. This transferability adds convenience and value, avoiding the need to purchase new insurance at each sale.
However, the new buyer must not take any steps that would invalidate the cover—such as contacting a local authority about the defect or carrying out major works that highlight the issue.
If the policy specifically names individuals or limits transfers, the conveyancer will ensure the correct endorsements are added.
What to do if you suspect your property might need one
If you’re buying a home and your conveyancer mentions the possibility of an indemnity policy, ask questions to fully understand:
The specific issue the policy covers.
The potential risks without it.
Who should pay the premium.
Whether the lender insists upon it.
Any obligations or restrictions you must follow after purchase.
Proactive discussion ensures you know exactly what protection you are purchasing and why.
Benefits of indemnity insurance at a glance
Provides peace of mind against hidden property issues.
Protects both the buyer and the lender from unforeseen costs.
Avoids transaction delays caused by complex legal rectifications.
Usually inexpensive and lasts indefinitely.
Helps maintain future saleability of the property.