Indemnity policies are commonly used in conveyancing transactions to overcome legal issues which could otherwise stall, delay or even kill a transaction completely. Indemnity polices do not resolve the legal issue that has arisen but rather provide cover for the risk that has been identified and any associated cost that may follow any enforcement action.
More and more clients and solicitors are willing to accept indemnity policies for an ever growing list of legal issues and problems but as with all good things there comes restrictions as to when a policy will be valid and can be used to cover any potential risk that is posed to a would be buyer and lender. Your solicitor should be able to advise whether an indemnity policy is suitable or not.
The most common mistake that Estate Agents and clients make, when trying to assist to resolve a legal issue is to make disclosure to a third party which in turn means the insurance is no longer available.
By way of example, a client or Estate Agent seeking to resolve a situation where there are no building regulations and trying to be helpful may contact Building Control to check if they can search for the relevant consents or to enquire about the possibility of retrospective consent. By doing so you or the Estate Agent have made a disclosure to a third party and the insurance route is no longer available. You should always check with the your solicitor before making any such approaches to third parties.
Similar issues arise where works have been undertaken to a leasehold property without landlord's consent. In most situations an indemnity policy can be taken out, but not if you have contacted the landlord to enquire about retrospective consent. Always check with your Solicitor before making these calls.
In both the above situations, you could have also now put yourself or your client if the Estate Agent makes the approach to the third party to additional costs in having to legally resolve the situation which is not only timely but costly. If the sale then falls through the vendor can still not take out an indemnity policy for the new buyer as the approach has been made.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
