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What is title indemnity insurance?
When you’re buying a home, your solicitor may discover that there is a defect on the title of the property. These defects could relate to issues like a breach of covenant, lack of planning permission, or an absence of right of way – we’ll go into these in more detail below.
If the property does have one of these defects, your solicitor will suggest that you take out title indemnity insurance to protect you from losing cash if a problem crops up.
An alternative to fixing the defect
Instead of taking costly and time-consuming steps to fix the defect, this kind of insurance covers any losses that they may cause you.
You can find a brief explanation of the different types of defects that might occur below:
- Lack of planning permission. If a previous owner carried out work on the property without getting planning permission, the local authority might take action against you for this.
- Breach of covenant. This is when the rules put in place by the person that first bought or developed the land the property sits on (the covenantee) are broken. These rules usually outline things you can and can’t do with the property. If you or the previous owner break one of these rules, the covenantee can take action against you, which may include a fine, or even court action. You can find out more about this here.
- Absence of right of way. This occurs when the road or pathway that leads to the property is privately owned. Issues can crop up if the owner doesn’t agree to let you use their road.
If action is taken against you in one of the ways above, you may decide to sell your home. The insurance covers you for any loss in value of your home because of this, and any legal costs that you have to pay.
Unlike many types of insurance, you’ll pay a one-off fee for the protection. If you sell your home, the insurance will transfer to the buyer automatically, and they shouldn’t be required to pay anything.
If you decide to take the insurance out, your solicitor will get a quote based on the property. When you’re buying a property, your solicitor will ask the seller to pay for the insurance. The majority of sellers will pay for this rather than scupper the entire sale, but you may have to negotiate and share the costs if they are opposed to paying the full amount.
Do I need it?
This kind of insurance isn’t a legal requirement. So, you don’t always have to take out a policy, but it is worth thinking about. If there’s no defect on the property you’re buying or selling, you won’t need this kind of insurance. But if there is, your mortgage lender will insist that you take it out to protect them too – and might withdraw their mortgage offer if you don’t.
If you’re a buyer, and a defect is discovered, you should seriously consider this insurance. You can ask your solicitor to request that the seller pay for a policy before you exchange.
With this kind of insurance, it’s worth following the below tips – not doing so could mean any claim you have to make doesn’t count:
- You must contact the insurer straight away if you need to claim.
- You must not try to fix the defect.
- You must not let any third party know about the insurance policy – unless you come to sell the property.
Whether or not you take out this insurance is a decision only you can make, and it’s a choice that will probably only come up if you decide to sell your home. To find out more about insurance policies that can be useful when you’re buying a property, read this blog.