What is a legal indemnity policy and when would I need one?
A legal indemnity policy is a type of insurance that protects you — and sometimes your lender — against specific legal risks affecting a property. These policies are commonly used in auction purchases, where there is no time to fix legal issues before completion, and the buyer agrees to take the property “as is”.
Rather than resolving a legal defect (which may take months or involve third parties), an indemnity policy provides financial protection if the issue causes a loss in future.
What does a legal indemnity policy cover?
- Lack of building regulations approval for past works
- No planning permission for extensions, conversions, or alterations
- Missing title deeds in unregistered land
- Access rights not properly documented
- Restrictive covenant breaches (e.g. building without consent)
- Absence of easements for services or drainage
- Chancel repair liability (an old obligation to contribute to church repairs)
The policy won’t fix the legal defect, but it will cover you for financial loss or legal costs if someone enforces the issue in future.
When would I need one?
Legal indemnity policies are used when:
- The issue can’t be resolved before completion
- The seller refuses to remedy the problem
- The buyer is willing to proceed, but only with risk protection
- The lender insists on it as a condition of mortgage release
In auction purchases, indemnity insurance is often the only practical solution to meet strict deadlines.
How much does it cost?
Most indemnity policies are one-off premiums, typically between £20 and £500, depending on the type of cover and property value. The policy usually lasts indefinitely and may be transferable on resale.
Either the seller or buyer can pay, depending on negotiation — in auctions, it’s usually the buyer.
What does it not cover?
- Defects you caused yourself
- Risks you were aware of but failed to disclose
- Physical defects or poor workmanship
- Costs of bringing a property up to modern standards
It is a passive protection, not a solution — and does not replace due diligence.
Summary
Legal indemnity insurance is a useful tool in auction transactions where legal issues can’t be resolved before completion. It allows you to proceed safely without delay — knowing you’re protected if the issue ever becomes a problem. At Versus Law, we regularly arrange tailored indemnity cover to help clients complete securely and on time.
What is a restrictive covenant and how can it affect me?
A restrictive covenant is a legal promise written into a property’s title that limits what the owner can do with the land or buildings. These covenants “run with the land,” meaning they bind future owners — including you, if you purchase the property at auction.
Restrictive covenants can seriously affect how you use or develop the property, and breaching them can lead to legal action, including court-ordered reinstatement or financial compensation.
What does a restrictive covenant do?
It may prohibit:
- Building on part of the land (e.g. no extensions, no second dwelling)
- Using the property for certain purposes (e.g. no business or Airbnb use)
- Making structural alterations without consent
- Parking certain vehicles (e.g. caravans, commercial vans)
- Keeping animals or running a trade
- Creating nuisance (e.g. noise, smell, overcrowding)