A Legal Indemnity Policy protects the buyer when a problem in the title of the property cannot be resolved. Under this policy, the insured party is indemnified by the insurer against any specified costs or losses which may occur in the future. Additionally, the premium for a legal insurance policy needs to be paid only once and is usually transferred to successors in title.
But you must also note that the legal indemnity insurance only offers financial compensation and does not cure the insured defect. It is also a condition for indemnity policies that their existence not be divulged to a third party.
How can you arrange an indemnity insurance policy?
Depending on the insurer, indemnity policies can be arranged through the post or even online, if they have an account with the insurance company. The insurer may also ask the buyer to arrange a cover and add the premium to, or deduct it from, the purchase price, as appropriate.
What is the cost of an indemnity insurance policy?
The cost or premiums for indemnity policies depend on the value of the property as well as the risk insured. Accordingly, the premiums are charged on a sliding scale, ranging from as little as £20 to as much as £300. There is also a possibility of some firms charging a fee for arranging the cover.
What risks can an indemnity insurance policy cover?
Indemnity policies basically cover valuable losses of any property and legal costs. Indemnity insurance will cover most title defects as well as some other issues.
Let us take a look at some of the common types of policies:
1) Absence of Easement Indemnity Insurance
The Absence of Easement Indemnity Insurance or “Lack of Rights” is an insurance policy which is used in cases where some part of the property clashes with private land without there being any legal right; or where services which are private or cross private land serve the property. For at least 12 months, the right must be exercised unchallenged, when supported by a statutory declaration. If any financial losses have occurred during the time that the use of right was being challenged, the policy provides compensation.
2) Adverse Possession Indemnity Insurance
In some cases, the owner of the property may have claimed ownership of some land, but are unable to provide required evidence to the land registry to prove that they are true owners. Here, the owner will only have possessory title. This is called adverse possession. In such situations, it is necessary for anyone purchasing the land to have indemnity insurance. The insurance will cover financial losses suffered by the purchases if someone tries to claim the land.
3) Breach of Covenant Indemnity Insurance (Freehold)
In cases where there is a breach of covenantsrelating to a freehold title,indemnity insurance can be of great help if the breach is less than 20 years old. The Breach of Covenant Indemnity Insurance can be offered as an alternative so that one can obtain the beneficiary’s consent. The cover will have a condition that the breach should at least be 12 months old and that the person obtaining the insurance knows of no attempt by the beneficiary of the covenant to take action.
4) Flying Freehold Indemnity Insurance
When a part of the freehold property overhangs that of a different freehold property, a flying freehold is said to occur. This usually happens when a property is divided into many freeholds.
5) Good Leasehold Title Indemnity Insurance
If the land registry doesn’t receive necessary proof of the superior title for a given property, a good leasehold title is usually used to register the property. The Good Leasehold Title Indemnity Insurance will offer compensation if the claim to the title is successfully challenged. For this policy, the cover will have the condition that no challenge should have been made when indemnity policy was taken out.
6) Lack of Planning Permission or Building Regulations Approval Indemnity Insurance
At places where property has been built, altered or extended without proper permissions and approvals, this insurance comes into effect. If the owner loses some money because the local authorities took action on breach of regulations, the policy will cover it. This insurance is usually only available for work that was carried out at least 12 months ago.
7) Unknown Easements, Rights and Covenants Indemnity Insurance
This indemnity policy might be used where there are documents which are either known to affect the title to a property or which might affect the title but the documents themselves, or details of their contents, cannot be produced. These documents may also contain covenants or restrictions which are in conflict with the current use of the land. Even though an indemnity policy cannot prevent enforcement of covenants, it can provide financial compensation if any.
In case you are not clear about any of the areas discussed, your conveyancing solicitor should be able to help you