Unexpected legal issues can arise when buying, selling or refinancing residential or commercial property, sometimes delaying a transaction or putting it at risk. In some cases, resolving the issue is not straightforward, particularly where historic documents are missing or retrospective consent would be needed.
Property indemnity insurance can often provide a practical solution, helping buyers, sellers and lenders manage certain legal risks and keep transactions moving where those risks cannot be resolved completely.
What is property indemnity insurance?
Property indemnity insurance is a one-off insurance policy designed to protect against financial losses arising from a specific legal defect affecting a property.
Unlike buildings insurance, which protects against physical damage, indemnity insurance protects against legal risks that may affect the property’s value, use or marketability.
Policies are typically arranged before completion and usually remain in place indefinitely, often benefiting future owners and mortgage lenders as well.
When might property indemnity insurance be required?
Every property transaction is different, but some of the more common situations where commercial indemnity insurance might be required include:
- Missing title deeds or historic documents.
- Restrictive covenant breaches.
- Lack of planning permission or Building Regulations approval for older works.
- Missing easements or rights of access.
- Chancel repair liability.
- Unknown or missing landlords where leasehold notices cannot be served.
- Defective title.
- Absence of rights for services crossing neighbouring land.
- Missing consent from landlords or previous owners.
Many of these issues arise because properties have changed hands numerous times over many years, records have been lost or historic alterations were carried out before modern record keeping became commonplace.
Resolving legal issues before completion
Where possible, resolving the underlying legal issue is usually the preferred option. However, this is not always practical.
For example, obtaining retrospective consent from a local authority or approaching someone with the benefit of a restrictive covenant could alert them to a breach that they may not otherwise have known about.
What isn’t covered by an indemnity insurance policy? party. Once contact has been made, insurance may no longer be available.
For this reason, it is important to seek legal advice before making enquiries yourself.
What does a property indemnity policy usually cover?
The scope of cover depends on the specific policy, but it may include:
- Legal costs incurred in defending a claim.
- Compensation or damages awarded against the property owner.
- Reduction in the property’s market value.
- Costs associated with complying with court orders.
- Mortgage lender losses where applicable.
Each policy contains its own terms, conditions and exclusions, so it is important to understand precisely what protection is being provided.
What isn’t covered by an indemnity insurance policy?
Indemnity insurance should not be viewed as a solution to every legal issue. Policies will commonly exclude matters such as:
- Known disputes that have already arisen.
- Deliberate breaches after the policy is taken out.
- Future development that increases the risk beyond the original use.
- Issues that have been disclosed to the party who could enforce the defect.
- Physical defects or repair issues affecting the property.
The insurer will assess the circumstances carefully before agreeing to provide cover.
Property indemnity insurance and mortgage lenders
If commercial property is being purchased with finance, the lender will usually require its legal advisers to investigate title thoroughly.
Where a title defect cannot reasonably be resolved before completion, many lenders will accept a suitable indemnity insurance policy as part of their lending requirements.
However, each lender has its own criteria regarding acceptable risks and policy wording, making it important to address any title issues as early as possible in the transaction.
Why early legal advice can save time and money for commercial property investors
Not every title defect requires indemnity insurance, and in some situations a more permanent legal solution will be preferable.
Equally, taking the wrong action before legal advice is obtained can make insurance unavailable altogether.
For that reason, it is always advisable to speak with your solicitor as soon as a potential issue is identified. Early advice can help determine whether the defect can be resolved, whether insurance is appropriate, and how best to protect both your investment and the progress of your transaction.
Ralli Solicitors LLP provide commercial property legal expertise
Our Commercial Property team at Ralli Solicitors LLP, advises developers, investors, landlords, tenants and business owners on a wide range of commercial property transactions.
If a legal issue arises during your purchase, sale or refinancing, we can assess the available options, advise whether indemnity insurance is appropriate and work with all parties to keep your transaction moving wherever possible. To speak to Ben Eaton or a member of our Commercial Property team, contact Ralli Solicitors LLP on 0161 832 6131 or email enquiries@ralli.co.uk.
