What does an indemnity policy actually do?
Almost every conveyancing transaction turns up something that is not quite right. A conservatory was built without a building regulations completion certificate. A covenant on the title from 1911 forbids the very extension that is standing in the garden. The only access to the garage runs over a strip of land nobody can prove a right to use. Curing these properly can take months or may not be possible at all, yet a buyer and a lender still need to know they will not lose money because of them.
A legal indemnity policy answers that need. The buyer's conveyancer identifies the defect and says what the policy must cover, and the policy is bought from a specialist insurer, directly or through a broker, for a one-off premium. If the defect later causes a loss, for example a council serving an enforcement notice, a neighbour enforcing the covenant or a landowner blocking the access, the policy pays the cost of dealing with it, up to the limit of indemnity stated in the policy.
Three features make it different from ordinary insurance. There is one premium and no renewal. The cover has no end date and passes automatically to successors in title and to any lender, so the policy is kept with the deeds and handed on at each sale. And nothing is inspected: the insurer relies on the description of the defect it is given.
What defects can be covered?
The table shows the defects a buyer commonly meets and, for each, what the policy does and does not do.
| Defect | What the policy covers | What it does not do |
|---|---|---|
| Missing building regulations completion certificate | Cost of enforcement action by the local authority and any resulting loss in value | Does not confirm the work is safe or sound; a survey does that |
| Missing planning permission | Cost of an enforcement notice and remedial works if the council acts | Does not grant permission; each insurer sets its own rule on how old the work must be |
| Breach of a restrictive covenant | Loss if the person with the benefit enforces the covenant, including legal costs and diminution in value | Does not release the covenant; it stays on the register |
| No right of way or defective access | Loss if the landowner blocks or challenges the access | Does not create a right of way; only a deed of grant or prescription does |
| Missing FENSA or Gas Safe certificate | Enforcement risk for replacement windows or a boiler installed without certification | Does not test the installation |
| Chancel repair liability | A demand from a parochial church council for repair costs | Still live. Since 13 October 2013 a buyer for valuable consideration of registered land takes free unless a notice is on the register, so the check is the register at the point of purchase, and a notice entered later binds a buyer after it. A gift, an assent or a transfer for no value does not take free. On unregistered land it binds the owner regardless, because it is a legal interest and is not registrable as a land charge (Practice Guide 66, checked 20 September 2026) |
| Absent or unresponsive landlord | Cost of obtaining a vesting order and losses from the landlord's absence | Does not produce the landlord or the consents the lease requires |
| Lost deeds or possessory title | Loss if someone with a better title to unregistered or possessory land makes a claim | Does not upgrade the class of title; a separate HM Land Registry application does that |
When is indemnity insurance the right answer?
It is the right answer where the defect is historic, the chance of anyone acting on it is remote, and the cost or delay of curing it properly is out of proportion to the risk. A covenant from the 1890s whose beneficiary cannot be traced is the textbook case. So is an extension built two decades ago whose completion certificate has been lost: the council has no realistic prospect of enforcement, and a policy costs a fraction of applying for a regularisation certificate and opening up the works for inspection.
Whether a lender will accept a policy is not a general rule. Each lender states its own requirements in Part 2 of the UK Finance Mortgage Lenders' Handbook, including whether it needs the policy sent to it and what limit of indemnity it requires, so the answer is checked for the lender on the file (checked 20 September 2026).
It is also the right answer for a seller preparing a property for market. Finding the gap before an offer is made, and getting a quotation for a policy, means the buyer's conveyancer is handed the solution alongside the problem rather than finding it in week six.
When is it the wrong answer?
Indemnity insurance is the wrong answer where the defect affects your ability to use the property rather than your financial exposure. A policy will not make an unsafe extension safe. It will not give you a right of way you do not have, or force a neighbour to move a fence. If what you want is the access or the consent, you need the cure, not the cover.
It is also wrong where the cure is cheap and available. Building work can often be put right with a regularisation certificate from the council, and planning with a retrospective application or a lawful development certificate. Recent works are harder to insure in any case, and some insurers exclude them.
Where there is a real safety concern behind a missing certificate, a structural alteration, a loft conversion without evidence of the steelwork, a gas installation with no record, the answer is a survey or a specialist inspection. Insurance protects against loss; it tells you nothing about the building. In the same way, a search indemnity policy on a purchase is no substitute for the searches themselves. Searches tell you what you are buying.
Why must nobody contact the council or the neighbour first?
Every indemnity policy is written on the basis that the risk is dormant. For missing consents, published policy wordings make it a condition of cover that the insured does not approach the council or apply for retrospective approval (checked against published insurer policy wordings, 20 September 2026). For a covenant, whether earlier contact with the person who has the benefit affects cover turns on the individual policy wording, so ask the insurer before anyone approaches them. A phone call to the planning department to ask whether the extension needed permission, or a friendly letter to the neighbour who has the benefit of the covenant, wakes the risk up and usually makes the policy unavailable or far more expensive.
The rule is simple: identify the defect, take advice, buy the policy, and only then, if anyone still wants to, approach the third party. Our restrictive covenant guide explains why the order of steps matters even more where a covenant is involved, because approaching the beneficiary also hands them a price to name.
Disclosing a defect to your own conveyancer, or on the property information form, is not the same as alerting the enforcing body. It is that disclosure that lets the right cover be specified at all.
Who pays for indemnity insurance, and how is it bought?
By convention the seller pays, because the defect is theirs and the policy is the price of the sale proceeding. It is a negotiating point like any other. Where the buyer's lender requires the policy, it has to be in place before completion whoever pays for it. The premium is driven by the type of defect and the sum insured.
Whoever pays buys the policy from a legal indemnity insurer, directly or through a broker. The defect is described on the insurer's proposal form, the quotation is confirmed, the premium is paid on or before completion and the policy schedule is issued. It is then kept with the deeds, and on every future sale it is disclosed and handed on. The conveyancer's part is to identify the defect, say what the policy must cover and for how much, and check the wording against the lender's requirements. Our indemnity insurance service does that advice and checking for buyers, sellers and remortgaging owners; we do not sell or arrange policies, and our fee is a fixed fee agreed in writing before work starts.
If you are buying, ask two questions when a policy is proposed: what is the defect, and what would it take to cure it instead. If curing it is impractical and the risk is dormant, the policy is the right tool. If the seller would simply rather not spend the money, you may want the cure. Our buying service asks that question on every file where a policy is offered.