I am planning to sell my home, and it has been suggested that I should think about taking out legal indemnity insurance. What is this, and why do I need it?
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A. Legal indemnity insurance basically protects the purchaser of a property against the possibility of financial loss or third-party claim arising from any shortcoming in the conveyance. Since you have been recommended to take out this cover, it suggests that your solicitor has identified a potential problem.
What that problem might be, I obviously can’t say. However, one of the main areas where this type of insurance comes into its own is over issues of title or ownership – particularly in cases where so-called possessory title is involved. This sometimes crops up with older properties which haven’t changed hands for a long time. It means that although the current owners may have had use of a piece of land for many years, there is no official record of them having full legal title.
Another common application is in the case of properties which may have been improved or extended, but where the owner neglected for whatever reason to gain Building Regulations approval for the work.
These are precisely the sort of glitches that would normally set all the legal alarm bells ringing. Legal indemnity insurance doesn’t actually solve the underlying problem, of course – but by literally indemnifying the purchaser against the costs of any future legal challenges, it enables the sale to proceed in the normal way.
Other problems where it can be useful include lost or poorly-worded legal documents, issues of access, restrictive covenants, or even properties built on unmade roads (where it provides protection against any future demands from the local authority for contributions to the cost of having the road made up).
Since legal indemnity insurance is designed to help ensure that property transactions are not unduly delayed or even prevented from going through altogether, it obviously benefits the seller as well providing protection for the buyer – which is why it can be taken out by either party. A single premium payment provides cover in perpetuity – so, once arranged, it can be transferred from owner to owner.