Over the last 20 years we’ve seen a massive growth in the number of indemnity policies used in conveyancing transactions. This is partly due to people and conveyancers (they are often different things!) becoming more cautious, partly as a business opportunity for insurance companies, and partly to speed things up in conveyancing.
So what is an indemnity policy? Basically it’s an insurance policy used to safeguard against some risk with the property you are buying. You can get policies to cover many things such as building an extension in breach of an old condition on the title deeds, or buying without the aid of a local authority search. The policy will normally contain a number of conditions – what they will and won’t pay out for – and also confirmation of the maximum amount they will pay out.
Wouldn’t it be better to just sort the original problem out? Better – Yes; Easier or quicker? – No. A common condition put on older title deeds in some areas would be that you can’t build on a piece of land without the consent of Mr XYZ. Now Mr XYZ probably died 100 years ago. His heirs and successors could give their consent – if you could find them. Also even if you did find they may refuse consent, or take 6 months to decide that they are prepared to allow it and/or charge a fee for saying yes. When you’re in a chain of transactions who all want to move next month, this sort of delay isn’t acceptable. In these circumstances an indemnity policy is ideal.
The indemnity insurance policy usually has a one-off premium, and the policy stays with the title deeds and lasts as long as the house (and insurance company!). It means that all parties in the chain can move on.
The reason you can get the policy so easily is because the risk in these circumstances is very low – if the insurance company were having to pay out regularly they just wouldn’t be offering the policy in the first place.
This blog is titled “the rise of the indemnity policy” – if you go back 20 years you would still see indemnity policies but they were pretty rare and were a real pain to arrange. In those days what would normally happen is that people would “take a view”. The Solicitor would discuss with a buyer the likelihood of someone actually enforcing the policy and they buyer would normally decide that actually they weren’t bothered about it and would carry on and buy. The solicitor would also consider the position on behalf of the mortgage company and come to the conclusion that it presents no risk to their security, and therefore the transaction would go ahead.
This position has changed over the years – people are more prepared to sue generally, so no-one wants to “take a view” any more. Coupled with the insurance companies seeing a business opportunity and making it easy to put these policies into place and a whole industry has been created out of nothing.