If you’ve ever navigated the process of buying or selling property, you may have encountered the term “indemnity policy.” These policies are a useful tool in property transactions, but they can sometimes feel shrouded in mystery. Let’s break down what indemnity policies are and why your conveyancing solicitor might recommend one.
What is an indemnity policy?
An indemnity policy is a type of insurance designed to protect against specific risks or legal defects associated with a property. These risks typically relate to issues that could affect the property’s value or legal standing but aren’t easy or cost-effective to resolve outright. Instead of fixing the problem, an indemnity policy offers financial protection if the issue leads to a loss or dispute in the future.
For example, let’s say your property doesn’t have proper planning permission for an extension built years ago. Obtaining retrospective permission or demolishing the structure might be impractical. An indemnity policy could cover potential losses if a future buyer raises concerns or legal action is taken.
Why do conveyancing solicitors recommend indemnity policies?
“A conveyancing solicitor’s role is to ensure your property transaction proceeds smoothly while safeguarding your interests”, claims SAM Conveyancing Birmingham. When they identify a potential issue, they’ll weigh up the risks and determine whether an indemnity policy is the best solution. These policies are often a cost-effective way to proceed without delaying the transaction.
Common scenarios for indemnity policies
Conveyancing solicitors often recommend indemnity policies in specific situations. Some common reasons include:
- Planning permission issues: As in the example above, these policies can be helpful when there’s no documentation for past changes to the property.
- Restrictive covenants: These are conditions placed on the use of the land, sometimes dating back decades. If there’s a risk of breaching a covenant, an indemnity policy can offer peace of mind.
- Missing documents: Missing title deeds or guarantees for work carried out, such as damp-proofing or window installation, are another common reason to consider a policy.
- Access problems: If there’s uncertainty about legal access to the property via a private road or shared path, indemnity insurance can mitigate future risks.
How do these policies work?
An indemnity policy is a one-off payment, usually made during the conveyancing process. It’s generally inexpensive compared to the potential costs of resolving the issue it covers. Importantly, these policies don’t fix the problem—they’re designed to provide financial protection if the risk becomes a reality.
Policies are typically transferable, meaning future owners of the property can also benefit from the protection. This feature can make a significant difference in maintaining the property’s appeal to buyers.
Wrapping it up
Indemnity policies are a practical solution for managing certain risks during property transactions. Whether it’s an unresolved planning permission issue, missing documentation, or an access dispute, these policies can offer a sense of security, allowing you to move forward confidently. Your conveyancing solicitor will assess when and if such a policy is needed, helping to streamline the process and protect your investment.
