What Happens to Indemnity Insurance When Selling a House?

A property transaction is often filled with mountains of paperwork, checks, viewings, delays, and more. Ultimately, it’s a risky process. And, at the end of it, hopefully, a worthwhile reward. The house sale that delivers a great return on your investment.

To protect the return on your property sale from costly legal fees further down the line, you may be advised to purchase indemnity insurance by your conveyancer. With the huge number of things that have been thrown your way during the sale, you may be questioning why you need this, what it is, and how it may help. That is completely understandable. After all, you’ve spent months trying to sell your house fast, and now the sale is almost here, you are being asked to sign more documents and spend more cash. This could be a smart move though, and in this blog, we will explain why.

What is indemnity insurance when selling a house?

Indemnity insurance is a form of protection that helps protect the buyer against problems that may be uncovered during the conveyancing process that are typically more than a simple and quick repair job.

It also acts to protect the seller from the results of a defect that could see legal action being pursued in the future.

Created as a policy that lasts a lifetime and made as a one-off payment, indemnity insurance when selling a house can be a worthwhile investment to save you from excessive future costs and give the buyer added peace of mind.

You may find that indemnity insurance is advised when you have missing documentation that the buyer could be required to provide in the future. For example, if you, as the seller, built an extension but lost the planning permission documents, the indemnity insurance policy will protect the buyer from action being taken against them and as a result, protect you from any of the fees that could have arisen from that action.

Indemnity insurance when selling a house is also advised when there could be a structural defect with the property that could see it devalued significantly in the future. Extremes such as subsidence, rising damp, or maybe even fire damage for example. Buyers are often advised to take up indemnity insurance when this is the case.

Find out more about subsidence via our How to Sell a House with Subsidence guide.

What does indemnity insurance cover?

If you have been advised to take out an indemnity insurance policy when selling your house, there will likely be a good reason. As we mentioned in our intro, indemnity insurance works to protect you from potentially huge expense should the new homeowners suffer from particular property problems that they may have inherited through something you may or may not have done to the home.

There will be a variety of indemnity insurance policies that you may be advised to take out, each one covering specific aspects of the property. They include:

• Planning permission indemnity insurance covers you when there is no documentation for the planning permission for the extension, or property alteration that may have taken place. This means that should a local authority or neighbour look to pursue action, there is cover against the costs of their claim.
• Restrictive covenants indemnity insurance is worth having where a property has broken some of the restrictions placed within the property deeds. For example, extensions and land access are often mentioned within property documents. If there were restrictions in place regarding these and they were breached, the policy will protect the buyer from any actions taken that may have broken those covenants.
• Chancel repair indemnity insurance is put in place when you live within the boundaries of a parish council. Residents are expected to help cover the costs of the church upkeep and an indemnity insurance policy will cover this.
• Building regulations indemnity insurance is one of the most common in our opinion. Paperwork gets lost and occasionally regulations are not met. A policy like this will cover the costs of any work needed to be done to rectify them.
• Access rights indemnity insurance may not always be needed but it can be worthwhile if neighbours have denied you access to your property. The policy will cover the legal costs of pursuing the access being granted.
• Absent freeholder indemnity insurance can be helpful for buyers as well as sellers. In the rare occasions where a freeholder seems to have vanished, a property may still be purchased but the freeholder may one day return asking for ground rents and other charges. This policy, taken out by the seller, protects them from the buyer pursuing them for the charges and protects the buyer from having to pay the charges themselves.

In addition to these common reasons for taking out indemnity insurance, sellers can benefit from taking out indemnity insurance to cover windows and the boiler too.

You could seek out indemnity insurance for a boiler if you can no longer locate any installation information for it. An indemnity policy will not guarantee the boiler is gas safe though so it is more likely that a buyer will feel more comfortable with a gas safety certificate instead.

When windows are installed, a FENSA certificate should be provided to show that the windows meet current regulations. As with anything, paperwork can go missing, and emails can get deleted. Taking out an indemnity insurance policy for this will protect you from action being taken by the local authority for not having proof that the windows comply with the rules.

It should be noted that indemnity insurance does not cover the repair work itself, it just covers any potential legal actions or losses regarding the non-compliance of regulations or the failure to have correct documentation. For example, if you held indemnity insurance for windows and it was flagged that the windows were non-compliant, you would not be covered to have new double glazing installed but would be covered for any losses.

Who pays for indemnity insurance when selling a house?

Who foots the bill for indemnity insurance when selling a house is a question posed often during the process of selling. Indemnity insurance is more likely to benefit the buyer as it is them inheriting the potential problems with the property. The argument here could be that the seller should pay for it as it was them who potentially caused the issues in the first place.

In most cases, the two parties should negotiate and discuss the merits of the policy. This could see both opting to pay for it as the indemnity insurance policy covers the property and not the individuals connected to it.

As the seller, if you are keen on getting a sale and have a property problem that could otherwise delay the sale, it would be beneficial to offer indemnity insurance as part of the transaction. This will give buyers a little more reassurance that they will not be stung by huge legal costs in the years to come.

That being said, a buyer may opt to assess the risk themselves and decide that they want to purchase indemnity insurance to protect themselves from future problems.

What happens to indemnity insurance when you sell a house?

Nothing. Indemnity insurance is for the property and not the individual, so the policy remains attached to the building forever. There will be an additional premium if the property value increases significantly though.

Who is covered by the indemnity insurance policy?

The indemnity insurance policy is for the property, the current residents, and whoever purchases the property after them. The mortgage lender is also covered by the policy.

How much will indemnity insurance cost when selling a house?

If you have chosen to take out indemnity insurance when selling your house, you should research the type of policy that may be best suited to the property. Prices can vary quite dramatically between the options available. For example, chancel repairs indemnity insurance can cost as less than £50 but policies relating to specific building regulations and property documents could cost hundreds.

Policies are calculated based on the type of property, its value, and its location so you could find that you pay more for one policy in this property than you would for the same policy in a different home.

You won’t be able to shop around for policies in the same way you do for other insurance products either so it may be advisable to speak with your conveyancer as well as do your own research to find a suitable provider.

Do I need indemnity insurance?

Ultimately, it is up to you. Indemnity insurance when selling a house can go some way to speeding up a sale that may otherwise have been delayed or even cancelled due to missing paperwork or a lack of compliance with specific regulations. In some cases, you may also find that the solicitor for the buying party has insisted it becomes part of the transaction to ensure its completion and that both parties are happy.

You should also factor into the decision-making process that indemnity insurance covers so many potential problems that getting a policy secured for the property can help you avoid surprise costs that could later arise.

It is advisable to take legal advice first though. You could find yourself taking out a policy due to missing documents or a belief that something may be wrong when it may be fine. An example could be where you have built an extension on your property but have no building regs documents for it. Depending on when the extension was built, there may have been no need for them anyway, so a policy would be pointless. Ask the experts before signing anything.

Can indemnity insurance get invalidated?

There are specific rules around indemnity insurance, and you can invalidate the policy quite easily. If the defect with the property is revealed to a third party, your policy will become invalid. An example would be planning permission. If you have obtained planning permission indemnity insurance but then retrospectively apply for planning permission, your policy becomes invalid and leaves you open to legal claims in the future with no protection.

If you are selling your home and want a stress-free way to do it without worrying about indemnity insurance and other policies and procedures, you could speak to our team at Bettermove. With our fast route to sale, your home can be sold and funds in your account within just 30 days. With no fees, there are no hidden surprises. Instead, your home is shown to a team of cash house buyers who will make an offer on your property and have it purchased quickly. Alternatively, you can sell directly to us and have your home sold in a timescale that suits you. Just get in contact today to make your move a better move.