Do I Need Indemnity Insurance to Sell My House?

Do I Need Indemnity Insurance When Selling a House?

Selling a house is rarely straightforward. Even when the right buyer is found and a price is agreed, the legal process can reveal issues that need to be resolved before the sale can go through. One of the tools often used by solicitors to overcome legal or historical problems is indemnity insurance. But if you are the seller, you may be wondering whether you need this insurance, when it applies, who pays for it and what exactly it covers.

Indemnity insurance is not something most people think about until it becomes necessary during conveyancing. It is a specialist form of cover that protects the buyer or lender from specific legal risks. These might include missing documents, breaches of planning rules or unresolved disputes. Understanding whether you need indemnity insurance as a seller can help speed up the transaction, reduce the chances of your sale falling through and offer peace of mind to all parties involved.

What Is Indemnity Insurance?

Indemnity insurance is a legal policy that covers a potential defect in the property’s title or documentation. It does not fix the issue itself, but instead provides financial protection if a third party were ever to raise a claim or object based on that issue in the future. The aim is to allow the sale to proceed without having to resolve a complex or time consuming legal problem, particularly where the risk of an actual claim is low but not zero.

Common triggers for indemnity insurance include missing planning permission for historical work, lack of building regulation certificates, absent restrictive covenant consents, missing title deeds or the use of a right of way without formal documentation. In leasehold sales, it might be used if there is no record of ground rent being collected or if a management pack cannot be obtained.

The policy usually names the buyer and any mortgage lender as beneficiaries, although in some cases, the seller may also be covered depending on the terms. It is a one off payment that lasts indefinitely and does not require ongoing premiums.

When Might You Need It as a Seller?

As the seller, you may be asked to provide indemnity insurance if a legal issue is uncovered during the buyer’s solicitor’s checks and it cannot be resolved quickly or economically. For example, if you had a conservatory installed ten years ago but do not have proof of planning consent or building regulations approval, your solicitor may suggest an indemnity policy to cover the potential risk rather than applying for retrospective approval.

Another common scenario is where part of the property has been built over a public sewer and no build over agreement can be found. Rather than delay the sale or require intrusive surveys, indemnity insurance can reassure the buyer that they are protected if a problem arises later.

Sometimes, the need for indemnity arises from very old issues, such as deeds missing from a prior transaction, or rights of access that have been used without objection but never formally documented. In many cases, these risks never materialise into actual problems, but lenders and cautious buyers want protection just in case.

Is It a Legal Requirement?

Indemnity insurance is not a legal requirement. You can sell a property without it, and buyers are not obliged to accept it. However, in practice, it is often the quickest and simplest way to satisfy a buyer or lender when minor defects are found. If you refuse to provide it, the buyer may withdraw from the purchase, reduce their offer or insist on you resolving the issue in full before exchange. This can create delay, extra cost or uncertainty.

Many solicitors now treat indemnity insurance as a standard solution to common conveyancing hurdles. It is especially useful where the cost of obtaining documents or permissions outweighs the likely risk or where the third party needed to resolve the issue no longer exists.

Who Pays for the Policy?

While there is no strict rule about who pays, it is usually the seller who funds the policy. This is because the seller is providing reassurance for an issue that arose during their ownership or has come to light in their title. In some cases, the buyer may offer to pay or share the cost if they are particularly keen to proceed quickly.

Policies are usually inexpensive. For a standard residential property, the cost often falls between twenty pounds and a few hundred pounds depending on the type and value of cover. More complex policies for higher value homes or commercial properties may cost more, but they are still relatively affordable compared to the potential impact of a delayed or collapsed sale.

Will It Affect the Value or the Sale?

Indemnity insurance is intended to remove obstacles to the sale, not reduce the value of the property. As long as the issue being covered is historical and unlikely to cause problems in practice, most buyers are happy to proceed with the right policy in place. Mortgage lenders are familiar with indemnity cover and usually accept it without concern as long as the policy is arranged properly.

However, if the defect is severe or the buyer feels uncomfortable relying on insurance, it may affect how quickly the transaction progresses or whether the buyer wishes to renegotiate. Transparency and clear communication through your solicitor will help manage expectations and demonstrate that the issue has been dealt with responsibly.

Are There Any Limitations?

Indemnity insurance has specific terms and conditions. It will not cover new problems that arise after the policy is taken out or any action that the policyholder takes which draws attention to the issue. For example, if the policy covers the lack of planning permission for an extension, the cover may become void if the buyer contacts the planning authority to regularise it.

The cover also does not repair or remedy the legal defect. It simply provides financial protection if a third party were to challenge the ownership or legality of the property based on that defect. For this reason, it should be seen as a solution to very specific legal problems, not a way to cover up known faults or defects in condition.

Your solicitor will review the policy to ensure it is appropriate and tailored to the issue at hand. It is important that all parties understand the limitations and agree not to take actions that could invalidate the policy.

Planning Ahead to Avoid Surprises

If you are planning to sell your home, it is worth gathering as much documentation as possible before listing the property. Certificates for any building work, planning approvals, guarantees, warranties and service records will all help make the process smoother. If you know that something is missing or was never obtained, speak to your solicitor early. They may recommend a policy in advance so that it can be offered as part of the sale pack, avoiding last minute delays.

Buyers will expect the legal side of a property to be in order. Indemnity insurance is one way to bridge the gap when documents are missing or issues cannot be resolved quickly. Being proactive, honest and well prepared will put you in a strong position and reassure your buyer that everything has been handled correctly.

Final Thoughts

You do not always need indemnity insurance when selling a house, but it can be a practical and effective way to deal with legal grey areas. Whether it is a missing certificate, an old planning issue or a title defect, a well chosen policy can allow your sale to proceed without delay and give your buyer peace of mind. By working closely with your solicitor and understanding what indemnity insurance does and does not cover, you can protect your sale, reduce stress and move forward with confidence.