When selling a property in the UK, one of the questions that often arises during conveyancing is whether you need indemnity insurance. Indemnity insurance is not always required, but in many cases, it becomes an essential tool for smoothing out legal or administrative issues that might otherwise delay or derail a sale. It provides protection for the buyer (and sometimes the mortgage lender) against potential financial losses linked to a specific legal defect or risk associated with the property. Understanding what it covers, when it is needed, and who pays for it can help both sellers and buyers navigate the process more confidently.

What Is Indemnity Insurance

Indemnity insurance is a one-off insurance policy designed to protect the policyholder against potential costs or losses that might arise from a defect in a property’s legal title or paperwork. It is not the same as home insurance and does not cover physical damage or repairs. Instead, it covers financial risks resulting from legal or administrative issues.

For example, indemnity insurance might cover the cost of defending a legal claim or the expense of resolving an issue that surfaces after completion. It provides reassurance to the buyer and mortgage lender that any potential future problems arising from that defect will be covered by the insurer.

Most policies last indefinitely, meaning they continue to protect the property even after ownership changes. Lenders often insist on indemnity insurance before they approve a mortgage if any unresolved defects are found during the conveyancing process.

When Is Indemnity Insurance Needed

Indemnity insurance is commonly required when a legal defect, missing document, or potential risk is identified during the sale process. While every transaction is different, there are several common situations where indemnity insurance becomes necessary.

Missing Building Regulation Certificates

If you or a previous owner made alterations, extensions, or structural changes to the property without obtaining the necessary building regulations approval, indemnity insurance can cover the risk that the local authority might take enforcement action. For example, if you installed new windows, converted a loft, or added a conservatory without final sign-off, the buyer’s solicitor may request a policy to protect against future claims.

Missing Planning Permission

Similar to building regulations issues, if planning permission for certain works cannot be located, indemnity insurance can protect against the possibility of the local council enforcing planning rules later. This is particularly common with older extensions or alterations where records have been lost.

Lack of FENSA or Gas Safe Certificates

Buyers often ask for indemnity insurance if certificates for double glazing or gas installation work are missing. These certificates confirm compliance with safety standards, and without them, lenders may be hesitant to proceed. A low-cost indemnity policy can quickly resolve the issue without the need for retrospective certification.

Absence of Rights of Way or Access

Sometimes, a property’s title may not include formal legal rights to access a driveway, shared path, or private road. An indemnity policy can protect the owner if a neighbour later challenges access rights. Similarly, if drains or pipes run beneath a neighbour’s land without formal permission, a “services” indemnity policy can provide cover.

Chancel Repair Liability

Some properties in England and Wales are subject to historic “chancel repair” obligations, meaning the owner may be legally required to contribute to the cost of church repairs. Although this risk is rare, solicitors often recommend a low-cost indemnity policy (usually under £30) to eliminate the risk entirely.

Restrictive Covenants

A restrictive covenant is a legal condition written into the title deeds that limits how the property can be used. For example, it might prohibit building extensions, running a business from the property, or making certain changes without permission. If previous works breached a covenant, or if the covenant’s origin is unclear, indemnity insurance can protect against potential claims from the covenant’s beneficiary.

Absence of Title Deeds or Unregistered Land

If your property is unregistered with the Land Registry or original title deeds have been lost, an indemnity policy can help satisfy the buyer’s lender. It covers the risk that someone else might later claim ownership or challenge the seller’s title.

Is Indemnity Insurance a Legal Requirement

Indemnity insurance is not a legal requirement when selling a house. However, it is often required by the buyer’s solicitor or the mortgage lender as a condition of proceeding with the sale. If a legal defect or missing document is discovered, the easiest and fastest solution is usually to purchase an indemnity policy rather than trying to resolve the issue through retrospective permissions, which can be costly and time-consuming.

For example, if a building regulation certificate is missing, applying for a retrospective regularisation certificate might delay the sale by several weeks. Instead, a simple indemnity policy costing around £50 to £200 can satisfy the lender and allow the sale to proceed quickly.

Who Pays for Indemnity Insurance

There is no fixed rule on who pays for indemnity insurance. In practice, it depends on the negotiation between buyer and seller. Often, the seller pays for the policy if the defect arises from their ownership or if it helps move the sale forward. For example, if the seller built an extension without the correct permissions, it is reasonable for them to cover the cost of the insurance.

However, if the defect predates the current owner or is a general requirement from the buyer’s solicitor, the cost might be shared or paid by the buyer. The premium is a one-off payment made on completion, and the policy remains valid indefinitely for future owners.

How Much Does Indemnity Insurance Cost

The cost of indemnity insurance varies depending on the type of defect, property value, and level of risk. Policies can start as low as £20 for straightforward issues such as missing certificates, while more complex cases involving access rights or title defects can range from £200 to £600. In rare cases, such as large development sites or significant legal disputes, premiums can exceed £1,000.

Because it is a one-off payment, most sellers find indemnity insurance a cost-effective solution to prevent a sale from falling through. Solicitors usually arrange the policy through a specialist insurer, and it can often be set up the same day.

How Indemnity Insurance Works in Practice

If a defect is discovered during the sale, your conveyancer will inform you and the buyer’s solicitor. They will then agree on an appropriate indemnity policy to cover the issue. The solicitor will provide details of the policy, including the scope of cover, exclusions, and the insured amount.

The key point is that indemnity insurance only protects against future claims; it does not fix the underlying issue. For example, if you lack building regulation approval for an extension, the policy will cover any financial loss or enforcement action that might occur in future, but it will not make the extension compliant or safe.

Importantly, you must not contact the local authority or any third party about the issue before obtaining the policy, as this could invalidate the insurance. Insurers only provide cover for undisclosed risks.

Limitations of Indemnity Insurance

While indemnity insurance provides valuable protection, it is not a substitute for proper documentation or compliance. It is a reactive measure rather than a proactive solution. If the defect is known and can be corrected, solicitors sometimes recommend fixing it instead of relying solely on insurance.

Buyers should also understand that indemnity policies usually cover the cost of enforcement or loss of value, not physical repairs. For example, if a structure later fails because it was not built to regulation standards, the policy would not pay for rebuilding or repair costs.

Furthermore, indemnity insurance only covers the named risk described in the policy. If another issue arises later, it will not be covered unless a new policy is taken out.

Should You Get Indemnity Insurance Before Selling

If you are aware of missing documents or unauthorised works before listing your property, you can arrange indemnity insurance in advance to make the sale smoother. This can reassure potential buyers and prevent delays once conveyancing begins.

For example, if you know a conservatory was built without planning permission or that the FENSA certificate for your double glazing is missing, having an indemnity policy ready demonstrates transparency and helps avoid last-minute obstacles.

Your conveyancer can advise you on which policies are relevant and obtain quotes from trusted insurers. However, you should avoid contacting the council or building control before arranging the policy, as this could invalidate it.

Case Example

A homeowner in Kent sold a 1930s semi-detached house with a loft conversion completed in the early 2000s. During the sale, the buyer’s solicitor discovered there was no building regulation certificate for the conversion. Rather than applying for retrospective approval, which could take weeks, the seller agreed to purchase an indemnity policy for £120. The policy satisfied the buyer’s lender, and the sale proceeded without delay.

In another case, a flat owner lacked a formal right of access to a shared rear alleyway. The conveyancer identified this as a title defect, and an indemnity policy costing £260 was arranged to protect against any future disputes. Both cases illustrate how indemnity insurance can keep transactions on track without legal complications.

Conclusion

While indemnity insurance is not always mandatory, it is a common and practical solution when selling a property with missing documents, legal defects, or unresolved permissions. It provides peace of mind for both buyer and lender, ensuring that any future claims or financial losses are covered without delaying the sale.

Whether or not you need indemnity insurance depends on your property’s history and the issues identified during conveyancing. If your solicitor recommends a policy, it is generally wise to proceed, as the cost is usually modest compared to the potential delay or cancellation of a sale.

By understanding what indemnity insurance covers and arranging it promptly when needed, you can help your sale progress smoothly, reassure buyers, and avoid unnecessary legal complications.