Do You Really Need an Indemnity Policy?

Indemnity policies have become a common feature in conveyancing over the past 10 years or so. They provide a cheap, cost-effective way to protect buyers and sellers against legal defects such as the absence of planning permission or building regulations or potential breaches of covenant.

While there is a place for indemnity policies in conveyancing, there are circumstances where they are unnecessary and have little or no value. This is particularly true in case of policies taken out to cover missing planning permissions or building regulations consents.

It is not uncommon for a seller to disclose that works were carried out some years ago to the property which on the face of it required planning permission or building regulations such as the construction of an extension or the installation of new windows, but for the paperwork to be missing.

In such circumstances, a buyer’s solicitor will often ask for the defect to be protected by indemnity insurance. But is this necessary?

First of all, the policy does not guarantee the quality of workmanship. It simply protects the owner of the property against any enforcement action that might be taken by the local authority. So, the buyer should ask their surveyor to check and confirm so far as he can that any work carried out has been built professionally and in compliance with building regulations.

Secondly, enforcement action can only be taken by the local authority within a specified period of time following completion of the works. For operational development completed before 25 April 2024, no enforcement action for breach of planning can be taken 4 years after the work has been completed. For operational development completed on or after 25 April 2024, enforcement can be taken within 10 years of completion of the work. The 10 year rule also applies to any breach of a planning condition.

For breach of building regulations, the time periods are 12 months from completion of works completed before 30 September 2023 and 10 years for works completed on or after 30 September 2023.

So, if you buy a house in 2026 that had new windows installed in June 2022 and the seller is unable to find the FENSA certificate, there is no need for an indemnity policy because no enforcement action can be taken because more than 12 months have expired since the works were completed.

Also, the results of the local search that the buyer’s solicitor will carry out may reveal that a notification was made under the competent person scheme. This is a self-certification scheme whereby the installation company or engineer certifies that the works complied with building regulations. Once again, this means that no indemnity policy is necessary. 

If you are buying or selling a property, please get in touch on 01892 662233 or reception@dwlaw-online.com. 

Written by Roy Willis - Partner