What is indemnity insurance in a house sale, and should I accept it?
The cheap policy that unblocks a large share of stalled sales. What it does and does not cover, why enquiring about the problem can void it, and when to insist on a proper fix instead.
- Difficulty
- intermediate
- Time
- 10 min
- Read
- 4 min
- Safety
- caution
Short answer
It is a one-off policy, usually paid for by the seller, covering the buyer and their lender against loss if a defect in the title or in the paperwork is ever enforced against them. It is common for missing building regulations certificates, breached restrictive covenants, absent landlords and unclear rights of access. It runs for the life of the property and normally transfers to future owners, but it does not make the problem go away.
Conveyancers reach for indemnity insurance because it is fast and cheap and it satisfies most lenders. That is often the right answer — the risk being insured is frequently theoretical. It is the wrong answer where the underlying issue is a live safety or structural question, because the policy pays money to whoever suffers a loss and does nothing about the unsafe staircase.
Safety
Step by step
- Identify what is actually being insured.Ask for the policy wording and read the insured risk. Common ones are a missing building regulations completion certificate, a breach of a restrictive covenant, a lost lease or an absent landlord, a defect in title, chancel repair liability, and unregistered rights of access.
- Understand what it pays for.It indemnifies against financial loss — the reduction in value, legal costs of defending enforcement, and in some cases the cost of works required by an enforcing authority. It is not a warranty that the work is sound.
- Check who is covered.The buyer, their lender, and usually successors in title. Confirm that successors are included, because otherwise the problem returns when you sell.
- Confirm nobody has made enquiries.Policies are underwritten on the basis that neither party has approached the council, the freeholder or whoever could enforce. Making an approach afterwards commonly voids the cover. This is why conveyancers advise against ringing the council to ask.
- Establish who pays.Conventionally the seller, because the defect is theirs. It is negotiable and it is usually a small sum against the value of the transaction.
- Ask whether the fix is available instead.A missing certificate can sometimes be obtained from the council. A regularisation application can be made for unauthorised work. A deed of grant can be obtained from a neighbour. Where the proper fix is realistic, it is worth more than a policy.
- Insist on more than a policy for safety issues.Where the concern is a structural alteration, an electrical installation, a removed wall, or a loft conversion without proper fire protection, a policy insures the paperwork risk and leaves the physical risk with you. Get it inspected.
- Keep the policy document with the deeds.It has no expiry and it will be asked for by every future buyer's solicitor. Losing it means buying another one.
- Tell your own insurer if it matters.An indemnity policy is not buildings insurance and does not replace it. Where the underlying issue affects buildings cover — unauthorised works, for instance — mention it to your buildings insurer.
Tips
- Ask for the policy wording, not just the certificate. The insured risk and the exclusions are the whole of the document that matters.
- Check that successors in title are covered. Otherwise the problem is yours to solve when you sell.
- Where the issue is structural or fire related, take the policy and get the work inspected. They answer different questions.
Common mistakes
- Treating a policy as a fix — It converts a legal risk into an insurance claim. It does nothing about a physical defect, and the underlying issue is disclosed again at every future sale.
- Ringing the council to ask about the problem — It commonly makes the risk uninsurable. Ask your conveyancer about the order of steps before making any enquiry.
If it doesn't work
The seller offers a policy for missing building regulations paperwork
Cause: Old work with no completion certificate — Fix: Ask the council for a copy first, before anyone takes out a policy. If none exists, decide whether the work is the kind you want inspected before accepting the policy.
A policy is proposed for a loft conversion
Cause: No completion certificate for a room in the roof — Fix: Loft conversions raise fire escape and structural questions. Take the policy if you like, and also get a surveyor or building control specialist to look at it. The policy does not make the escape route safe.
You have lost the policy document
Cause: It was in the completion pack years ago — Fix: Ask your conveyancing file's firm for a copy, or the insurer. If it cannot be found, a fresh policy may be needed at your cost when you sell.
Questions people ask
Does it make unauthorised work legal?
No. It insures against the financial consequences of enforcement. The work remains unauthorised, and a future buyer will see the same issue and the same policy.
Will a lender accept it?
Most lenders accept indemnity policies for the standard risks, which is why they exist. Your conveyancer will check it against your lender's requirements.
Can I ring the council to check instead?
Ask your conveyancer first. Once an enquiry is made, an indemnity policy for that risk often becomes unavailable, so the order of steps matters and it is not intuitive.
How much does it cost?
Usually a modest one-off premium relative to the price of a house, varying with the risk and the property's value. Your conveyancer obtains the quote.