Buying or selling a property involves a mountain of paperwork. Just when you think you are nearing the finish line, your conveyancing solicitor might suddenly mention that you need an “Indemnity Policy” to proceed.
For many buyers and sellers, this creates panic. Does this mean there is something wrong with the house? Is the sale about to fall through?
The short answer is: Don’t panic. Indemnity policies are actually “problem solvers” designed to keep the transaction moving.
In this guide, we explain exactly what indemnity policies are, why they are requested, and how they protect you from future legal headaches.
What is an Indemnity Policy?
An indemnity policy is a specialised type of insurance. Unlike your car or home insurance, which protects you against physical damage (like a fire or a crash), an indemnity policy protects you against legal defects with the property title.
Usually, these defects are minor historical issues where the necessary paperwork is missing, or a procedure wasn’t followed correctly by a previous owner.
The policy provides a financial safety net. If the “legal defect” ever results in a third party (like the local council or a neighbour) taking enforcement action against you, the insurance covers:
- The legal costs of defending the claim.
- Any loss in the property’s value.
- Compensation or damages you are ordered to pay.
Crucially: It involves a one-off payment. There are no monthly premiums. Once paid, the policy usually lasts for the lifetime of your ownership (and often passes to future owners).
Why Do I Need One?
During the conveyancing process, your solicitor’s job is to investigate the property’s legal history. Occasionally, they will find a gap.
For example, perhaps the previous owner built an extension 10 years ago but lost the completion certificate. To fix this “properly” (by contacting the Council for retrospective consent) could take months, delaying the chain and potentially causing the sale to collapse.
An indemnity policy is the faster alternative. It allows you to “insure over” the risk so the sale can complete on time.
The 3 Most Common Reasons for an Indemnity Policy
While there are dozens of policy types, these are the most common scenarios we see in residential transactions.
1. Missing Building Regulation or FENSA Certificates
This is the most frequent issue. If a previous owner replaced the windows or removed a load-bearing wall, they should have obtained a completion certificate or a FENSA certificate.
If these documents are missing, the Local Authority could theoretically force you to redo the work or fine you (though this is rare after 12 months). A “Lack of Building Regulations” indemnity policy protects you against the cost of complying with an enforcement notice if the Council ever comes knocking.
2. Breach of Restrictive Covenants
Many older properties have rules written into their deeds, known as restrictive covenants. Common examples include “no extensions” or “no trade or business.”
If a previous owner built an extension 20 years ago in breach of this covenant, the original landowner (the beneficiary) could theoretically demand it be torn down. An indemnity policy protects you financially if the beneficiary ever appears to enforce that old rule.
3. Missing Legal Rights (e.g., Access or Drainage)
Sometimes, a house is accessed via a private lane or uses drains that cross a neighbour’s land, but there is no formal “easement” (legal right) written in the deeds. An “Absence of Easement” policy protects you if the neighbour suddenly decides to block your access or disconnect your drains.
The Golden Rule: Do Not “Tip Off” the Authorities!
This is the most critical rule of indemnity policies: They are invalidated if you reveal the defect to a third party.
For example, if you are buying a house with an unauthorised extension and you call the local Council to ask, “Is this extension legal?”, you have effectively alerted them to the problem. Because the Council is now aware, the insurance company will refuse to offer a policy.
This is why you must let your solicitor handle the enquiries. If you try to investigate the problem yourself, you might make the property uninsurable.
Does the Policy Fix the Problem?
No. This is a common misconception.
An indemnity policy does not fix the physical defect.
- If you buy a policy for “Lack of Building Regulations” on an extension, it does not guarantee the extension is safe. It only pays out if the Council takes legal action.
- It is not a warranty for bad workmanship.
This is why we always recommend you commission a comprehensive homebuyer survey. A survey checks the physical condition of the property (is the wall safe?), while the indemnity policy covers the legal risk (is the paperwork missing?). You often need both.
Who Pays for the Policy?
This is a matter of negotiation, but generally:
- The Seller pays: Since it is usually the seller’s “fault” that the paperwork is missing (or they are the ones who breached the covenant), it is standard practice for the seller to pay the premium to reassure the buyer.
- The Buyer pays: In a seller’s market, or if the cost is very low (some policies are less than £50), a buyer might agree to pay it just to speed up the process and avoid delays in selling the house.
Is an Indemnity Policy Worth It?
If you are faced with a legal defect, you usually have two choices:
- Fix it legally: Apply for retrospective planning permission or contact the covenant beneficiary. This is slow, expensive, and risks a “refusal” which could devalue the house.
- Indemnity Policy: Fast, relatively cheap, and allows the sale to proceed immediately.
For most standard residential transactions, the indemnity policy is the pragmatic choice. It satisfies your mortgage lender (who will almost certainly insist on one) and gives you peace of mind that you are protected against future legal costs.
Summary
Indemnity policies are a standard part of the modern conveyancing toolkit. They are not a “red flag” regarding the structural integrity of the house; they are a financial shield against paperwork that went missing years ago.
If your solicitor suggests one, it is usually good news—it means they have identified a risk and found a quick solution to keep your purchase on track.
Have more questions about the legal hurdles of buying a home? Read our guide on what a conveyancer does for the seller to understand the process from the other side of the fence.
