What Is an Indemnity Policy and What Does It Cover?

Property Law Unpacked is our practical guide to buying and selling property in the UK. Each article takes a real question or scenario faced by buyers and sellers and explains the legal process in plain English, with insights from our experienced property lawyers. Whether you’re a first-time buyer, a seasoned investor, or preparing to sell, this series gives you the clarity and confidence to navigate your move.

In this instalment, we explore indemnity policies, a practical but often misunderstood part of the conveyancing process. From missing paperwork to planning issues or old covenants, we explain when indemnity insurance can help, what it actually covers, and how our property lawyers can guide you through your options to keep your transaction moving smoothly.

What can you indemnify?

Indemnity policies often crop up during property transactions, usually when a legal issue can’t easily be resolved or when there's a risk, however small, that could affect the buyer in future. But what exactly can you indemnify, and when is an indemnity policy the right solution?

Let’s break this down in plain English, because it’s a part of conveyancing that can cause confusion but is actually very practical when used appropriately.

What is an indemnity policy, in simple terms?

An indemnity policy is an insurance policy that protects the buyer or lender against a specific legal risk. It doesn’t fix the problem, it just provides financial cover in case that problem ever causes a loss. Importantly, most policies don’t require you to admit fault, and the buyer doesn't have to deal with the issue directly.

These policies are typically:

A one-off cost, with the price dependent on the issue being indemnified. In other words, the nature of the risk and the value of the property.
Valid for the lifetime of the property
Usually passed on to future owners, but not always.

They are not general insurance for defects; they are very specific to legal risks identified during the transaction.

Common things that can be indemnified

1. Lack of building regulations approval

You may have had work done, like a loft conversion, kitchen extension, or new boiler, without getting formal building regs sign-off. If that’s the case, and the council has the theoretical power to take enforcement action, a buyer may ask for indemnity insurance to cover that risk.

2. Lack of planning permission

Similar to the above, if an extension or change of use was carried out without planning permission and is now lawful only through the passage of time, an indemnity policy can cover the risk of enforcement.

3. Missing documents

If key documents are missing, such as a deed of easement for a right of way, or the original planning paperwork, an indemnity policy can sometimes be used to bridge the gap, provided there’s no actual dispute.

4. Breach of restrictive covenant

Some properties have historic covenants (promises attached to the land) that, technically, may have been breached, for example, altering the exterior without consent. If the person or organisation with the benefit of the covenant is unknown, a policy may cover any future challenge.

5. Absence of easements

An example might be a property that has long used a path or driveway that’s not formally recorded as a legal right. If no one’s challenged it, but the right isn’t clearly documented, a policy may be taken out.

6. Absence of consent from a third party

If a lease or title says you need consent to do something and you’ve gone ahead without getting it, say, subletting a flat or changing the layout, an indemnity can sometimes offer a workaround, provided no challenge has yet been made.

7. Chancel repair liability

This is a rare one, but in some parts of England and Wales, properties are theoretically liable to contribute to church repairs. Indemnity policies are often used to manage this quirky risk.

When can’t you use an indemnity policy?

If the risk has already materialised. Indemnity policies are forward-looking, not retrospective.
If you've already approached a third party (like the council or a neighbour) about the issue, this often invalidates the policy.
If the buyer’s lender won’t accept it (this is rare, but some lenders may take a cautious view).

Who pays for the policy?

Usually, it’s the seller, but not always. If the issue benefits the buyer more than it affects the seller (for example, allowing the sale to proceed faster), the cost may be split or fall to the buyer. Policies are relatively inexpensive, so they’re often a quick and practical way to avoid delays.

Do indemnity policies fix the underlying issue?

No, and this is important. The issue still technically exists. The policy simply covers the financial consequences of that issue turning into a dispute. But in most residential transactions, the risk is small, and lenders are generally happy to accept a policy rather than delay the deal.