Indemnity insurance policies are commonly used in property transactions to provide protection in situations where the legal position is either unclear or not fully acceptable to a purchaser or mortgage lender.
Indemnity policies can be a quick way of resolving legal issues to everyone’s satisfaction, so are frequently used to speed up the conveyancing process. Depending on the defect, insurance quotes are usually given within a day or so and the policies can be taken out quickly.
What do they cost?
The cost varies according to the value of the property, its use and the nature of the risk. Usually a single upfront premium is paid on the day of inception of the policy and there are no later regular instalments to pay.
What do they cover?
The insurance will usually cover both the purchaser and the mortgage lender in the event of any loss of value in the property as a result of a defect. Title Indemnity, Right of Way Issues, Lack of Planning Consents/Building Regulation Approval and Unknown & Restrictive Covenants to name a few, are common reasons why these policies are obtained.
Who has to pay?
It is the seller’s responsibility to provide a clear title to a purchaser on a property sale. Therefore, the onus to put in place and pay for an indemnity policy usually falls on the seller. However, having said that, if the purchaser is keen to complete or it is the purchaser’s mortgage lender that is in insisting on a policy – the purchaser may decide to take a commercial view and pay for the insurance. It is often up to the bargaining strength of the parties and it is common to reach a compromise where both parties split the cost.