What Is An Indemnity Insurance Policy?
To enable your sale or purchase to progress you may be asked by your Solicitor to provide an indemnity insurance policy. An indemnity insurance policy will indemnify the insured party against a specific cost or loss which may be incurred in the future as a result of a defect in connection with the property.
What Does An Indemnity Policy Cover?
Indemnity policies can cover a range of legal defects with the property that cannot be resolved or would either take significant time or cost in doing so. Such risks could include a lack of planning permission and/or building regulations, lack of rights to use services and passageways, breach of covenant or rent charges.
However, an indemnity policy will not cover the cost to repair or replace something. For example, if there was a policy put in place to protect a party against enforcement action from the local authority due to the absence of a building regulations certificate for the installation of a boiler, the policy would not cover the costs to repair or replace the boiler or guarantee the safety of the installation.
The cost of an indemnity policy varies depending on value of the property, the type of policy required and the risk.
Your Solicitor will obtain a quotation and will then take your instructions on the statements of fact made within the policy and will provide details of any limitations. The statements of fact are the assumptions upon which the policy is issued. For example, an indemnity insurance policy in relation to an absence of rights within the title to the property will require the current owner to confirm the following: that the access way has remained unobstructed during their ownership; they have not had any contact with the owner of the access way regarding the use of the access. It is important that all relevant details are disclosed to the insurance provider to prevent invalidation of the policy in the future.
The policy limit will usually be the value of the property sale price. With most policies, the limit will increase on the anniversary of the commencement date by 10% to account for the increase in property value. However, this is limited to 200% of the original policy limit. Therefore, it may be necessary to increase the policy limit when you come to sell the property. This can be done by contacting the insurance provider and paying a top-up fee.
The cost of the policy is usually met by the seller, but sometimes the purchaser will meet the cost, or the cost may be shared. Much will depend on the parties to the transaction and the insurable risk. The average cost for a policy which protects against the absence of rights of access is between £180 - £230 for a £250,000 to £300,000 property. The average cost for a policy relating to the absence of a building regulations certificate would be between £70 to £120 for a £250,000 to £300,000 property.
In all cases contact should not be made with third parties such as the local authority, developers or even your neighbours, as the insurers will not accept a risk if a third party is on notice. For example, you should not contact the local authority for retrospective building regulations consent for works to the property which are now being insured. This would invalidate the policy and leave yourself open to the risk of the local authority taking enforcement action against you without any protection.
If you have purchased a property with an indemnity policy, you should keep the policy documents safe and accessible. You should only disclose the documents to your conveyancer when you sell the property in the future or if you need to make a claim on the policy.
Finally, depending on the risk/defect, it may be necessary to report the issue to the mortgage lender and make them aware that an indemnity policy will be taken out on completion. The lender may not always accept a policy and it may be a requirement of theirs for the defect to be corrected before completion. The CML Handbook is a set of the instructions from mortgage lenders to solicitors which must be followed during the conveyancing proceed. The handbook has a specific section which sets out the lender’s requirements if an indemnity policy is to be taken out and provides guidance of whether the lender will accept a policy for certain risks/defects.
How Can Timms Help?
If you would like a no obligation quote for our conveyancing services or to discuss a particular matter, please feel free to contact me on 01332 364436 or at legal@timms-law.com.
