Property Indemnity Insurance, When Sellers Need It and What It Covers

What is Property Indemnity Insurance?

Property indemnity insurance, also called title indemnity or legal indemnity insurance, is a one-off insurance policy that protects against financial loss arising from a specific, known legal defect affecting a property. It does not fix the defect; it insures against the financial consequence of the defect materialising.

Unlike buildings insurance, which covers future physical damage, indemnity insurance covers a known legal risk that already exists. It is commonly used during conveyancing to unblock transactions where a legal issue is discovered that cannot be practically resolved in the timeframe of the sale.

Why Sellers Usually Pay

The question of who pays for an indemnity policy is negotiable, but in the majority of cases the seller pays. The logic is that the defect exists at the time of the sale and is the seller's responsibility to resolve or insure. If the seller cannot resolve the defect (for example, because it is impractical to obtain retrospective planning consent), the next best option is to indemnify the buyer against the risk.

Buyers may sometimes be asked to contribute, particularly if they were aware of the issue before making their offer, but this is less common.

The Most Common Situations Where Sellers Need Indemnity Insurance

1. Missing Building Regulations Completion Certificates

Building regulations apply to most structural works, extensions, conversions, and significant alterations. When a homeowner completes qualifying works, the local authority (or an approved inspector) should issue a completion certificate confirming the work meets the required standard.

Many sellers discover, during conveyancing, that completion certificates were never obtained for works carried out by a previous owner, or even by them, years earlier. The buyer's solicitor will flag this as a risk.

An indemnity policy in this situation covers:

• The cost of enforcement action by the local authority
• The cost of remedying non-compliant works
• Any reduction in the property's value caused by the defect

**Policies are not available** where the works were completed within the last 12 months (because enforcement risk is live), or where the local authority has been contacted about the missing certificate (because this "opens up" the risk).

2. Restrictive Covenant Breach

Restrictive covenants are obligations recorded in the title register that restrict how a property can be used. Common examples include covenants prohibiting extensions, business use, or subdivision of the plot. These covenants are often very old, sometimes Victorian, and the original beneficiary may be untraceable or may not be aware the covenant exists.

If the current owner (or a previous owner) has breached a covenant, by building an extension without the required consent, for example, an indemnity policy protects against:

• A claim by the beneficiary of the covenant for an injunction requiring the breach to be remedied
• Damages payable to the beneficiary
• Legal costs of defending any such claim

**Cost indicator:** For a breach committed more than 12 months ago with no known objection from the beneficiary, single-premium policies start from approximately £100–£300.

3. Absence of Planning Permission

Similar to building regulations, planning permission may have been required for certain works (particularly changes of use, extensions above permitted development limits, or outbuildings exceeding permitted development thresholds) and not obtained.

If the works are more than four years old (for most building works) or ten years old (for change of use), the local authority's ability to take enforcement action is time-limited. A policy protects against the residual risk of enforcement action within the limitation period.

4. Chancel Repair Liability

Chancel repair liability is a medieval obligation, still legally recognised, under which the owner of certain land may be required to contribute to the cost of repairing the chancel (part of the nave) of the local Church of England parish church.

Since 2013, chancel repair liability must be registered as a land charge to bind purchasers. However, if it was registered before 2013 or is registered as an overriding interest, it may still bind new owners. Where a chancel search identifies a potential liability, or where the seller cannot produce evidence that no liability exists, an indemnity policy is the standard solution.

**Cost indicator:** Chancel repair indemnity policies are typically very inexpensive, £20–£100, because the risk is remote and limited in practice.

5. Absence of Easements or Access Rights

If a property relies on access over neighbouring land and there is no formal, registered right of way, a buyer's solicitor will raise this as a defect. Where a right of way has been used for many years without objection but is not formally documented, an indemnity policy can be used to cover the risk of the neighbouring landowner challenging access.

6. Flying Freehold

A flying freehold exists where part of a freehold property overhangs or underlies land owned by someone else, for example, a room above a shared archway. This creates a structural interdependence with no automatic legal mechanism for enforcement of maintenance obligations. Lenders often require an indemnity policy before lending on properties with flying freeholds.

What Indemnity Insurance Does NOT Cover

It is important to understand the limits of indemnity policies:

**It does not fix the defect.** The underlying legal issue remains. If a future buyer also wants a policy (or an updated one), they will need to purchase it.

**It does not cover costs you incur voluntarily.** If you decide to obtain retrospective planning consent or building regulations approval after a policy is in place, the costs of doing so are not covered. In fact, contacting the local authority after taking out a policy can invalidate it.

**It does not cover disputes you were already aware of and failed to disclose.**

**It does not protect against all third-party claims**, only those specifically described in the policy schedule. Read the exclusions carefully.

How Much Does Indemnity Insurance Cost?

Costs vary significantly depending on the type of defect, the property value, and the insurer. A single-premium policy for a straightforward defect on a residential property typically costs:

Policies are purchased once and run with the property (or for a defined period). Buyers who subsequently sell can usually transfer the benefit of the policy to the next buyer, or the seller on the next transaction can purchase a new policy.

How to Get an Indemnity Policy

Your solicitor will arrange the appropriate indemnity policy as part of the conveyancing process. They will identify the defect, determine whether a policy is available, obtain a quote from a specialist insurer (providers include Aviva, CLS, Defaqto, or First Title), and present it to the buyer's solicitor for approval.

Do not contact the local authority, the covenant beneficiary, or any other relevant party about the defect before the policy is in place. Doing so is likely to "activate" the risk and make the policy unavailable or void.

Property Passport UK and Pre-Sale Preparation

Sellers who review their property's planning history, building regulations history, and title register early, using the data available on Property Passport UK, are more likely to identify potential indemnity issues before marketing begins. Identifying a missing building regulations certificate before the buyer's solicitor does allows the seller to obtain a policy proactively, preventing the issue from becoming a last-minute obstacle to exchange.