What is Indemnity Insurance?
Aug 2, 2017
Anyone who has bought or sold a home will know about the checks that make up a large part of the conveyancing process.
A buyer must understand what they’re buying. They need to know about any problems relating to the property and anything that might restrict their use of it. And they need to know that the legal title (the set of rights relating to the property) is all in order. It’s only once those facts are brought to light that a buyer can really be confident in proceeding with the purchase; or, as sometimes happens, deciding that the property isn’t for them after all.
There is a middle ground between those two positions. Indemnity insurance offers buyers protection and reassurance in situations where a conveyancer’s checks have uncovered certain problems in the paperwork. Perhaps the ownership documents are incomplete, or the seller didn’t get planning permission or building regulations approval for works done on the property.
An indemnity insurance policy will cover a buyer’s losses stemming from the particular defect that has been identified. And in situations in which a house purchase might otherwise fall through, it can be an effective way of keeping things on track for both parties, and for others in the chain.
Indemnity insurance remains the exception, not the norm, in conveyancing. Some defects can be rectified relatively easily by a good property solicitor. Where that isn’t possible, your solicitor will help you weigh up the risk of buying the property with the defect still in place. But in many cases - particularly where a lender requires everything relating to the property’s title to be in order – indemnity insurance will be arranged so the purchase can go ahead.
A one-off fee will buy the policy, which will usually last for many years. And most buyers will want to insist on the seller paying; after all, the seller has failed to provide everything they should have. But given that these types of stumbling blocks really can derail house purchases – and it’s the buyer who stands to benefit from the policy - the buyer will sometimes agree to pay for it, or will share the cost with the seller.
In the grand scheme of things this is often reflected on as a small price to pay for making that move up the property ladder, and for peace of mind in the years ahead.
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