Indemnity insurance in the context of selling a home is a specific type of legal insurance that protects against the risk of a loss arising from a known defect in the property's title, missing documentation, or a breach of a planning or other legal requirement. It is commonly used to enable transactions to proceed where resolving the underlying issue would be impractical, disproportionately expensive, or impossible.

Common Situations Where Indemnity Insurance Arises

Indemnity insurance policies are routinely obtained for a wide range of issues identified during conveyancing. Missing or absent planning permissions for extensions or outbuildings that were built without consent are among the most common triggers. Building Regulations completion certificates that are not available because the builder did not properly close out the application, or because old records have been lost, frequently require an indemnity policy. Breach of restrictive covenants, where a covenant in an old deed restricts the use of the property and there is evidence that the restriction has been breached without challenge, can be covered by an indemnity policy. Missing or absent title documents, such as a missing deed in an unregistered property title chain, may also require an indemnity.

Who Pays for Indemnity Insurance?

Indemnity insurance is relatively inexpensive, with most standard policies costing between one hundred and five hundred pounds for a one-off premium. The cost is a one-time payment and the policy runs with the property, covering all future owners as well as the current one. The question of who pays is a matter of negotiation between buyer and seller. In many cases the seller pays as it is their property that has the defect, but the cost is often split or the buyer accepts it in exchange for the transaction proceeding smoothly. Given the low cost relative to most property transaction costs, disputes over who pays for indemnity insurance are rarely worth prolonged negotiation.

When Indemnity Insurance Is Not Appropriate

Indemnity insurance covers the risk of loss from a known issue; it does not fix the underlying problem. For active breaches or ongoing issues, such as a current dispute with a neighbour over a right of way or an enforcement notice that has been issued by the planning authority, indemnity insurance is not available and the underlying issue must be resolved. An insurer will not provide cover where there is an active enforcement risk or an ongoing complaint that makes a claim likely.

Does the Buyer Need to Agree?

The buyer and their solicitor must agree to accept the indemnity insurance as a resolution to the identified issue. Most buyers and their solicitors will accept a standard form indemnity policy for common defects, particularly for older issues where the risk of enforcement or challenge is low. Some buyers or their lenders may decline to accept an indemnity policy for more serious or recent issues and may require the underlying problem to be resolved instead.

Summary

Indemnity insurance is a common and practical tool for resolving title defects and missing consents in residential property transactions. It is not always required, but when a defect is identified during conveyancing it is often the most efficient way to enable a transaction to proceed. Policies are relatively inexpensive, run with the property in perpetuity, and cover all future owners. The key limitation is that indemnity insurance cannot be obtained for active or ongoing issues where a claim is likely; those must be resolved directly.