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Who pays for indemnity insurance - the buyer or seller?
If you’ve ever bought or sold a house, you may be familiar with the term ‘indemnity insurance’. This is an insurance policy you take out to cover you for any work done by a previous owner that might violate your home’s deeds.
But whether or not you’ve heard of the policy, who is responsible for paying it – the buyer or seller? Read on to find out.
What is a restrictive covenant?
A restrictive covenant is a rule introduced by the person or group that built your home or owned and developed the land it now stands on. It sets out what you can and can’t do with the property.
The problem is, you may not even know if your home has one. It should be listed in your property’s Title Document, but it may not be. Even if it is there, you may not have read the document closely when you bought the house and might not even realise it’s there.
However, when you sign the documents to become the legal owner of your property, you also agree to keep to any of the restrictive covenants it’s subject to. This means there could be certain work you’re planning that you need to seek permission from the property’s original owner to carry out – which can be tricky if it’s more than 60 years’ old, as many buildings in the UK are. That’s where indemnity insurance comes in.
Cover your back
If you’re planning work to your home that you need permission from the holder of the restrictive covenant to complete, but you can’t track them down, an indemnity insurance policy should provide some protection. And if you’re worried that a previous owner may have violated a covenant, you can also consider this insurance.
This type of policy means that you have a level of protection in the – however unlikely – event that the covenant’s holder makes a claim against you. You can find out more about restrictive covenants by reading this blog post.
All of this brings us to the question we started with:
If you’re in the process of selling a property and are enjoying the fact you’ve found a buyer, it may come as an unwelcome surprise if their solicitor gets in touch to tell you there’s a restrictive covenant that may have been breached. Should you pay for a policy to get the sale moving, or ask the buyer to? After all, once you move out it’s not your problem anymore.
The problem is, there is no fixed answer. Yes, it is only the buyer who will have a use for it, but if it’s causing them a particular concern they may feel it’s up to the seller to fix the problem.
You could consider splitting the cost of a policy down the middle. This can be worked out by each of your solicitors or conveyancers before you exchange contracts. Indemnity insurance usually costs around a few hundred pounds, and every penny counts when you’re moving house so sharing the cost could be a win-win for you both.
We hope this has cleared up any questions you have about paying for indemnity insurance – even if there is no set answer. For more advice on buying and selling property, keep checking the blog.