Legal indemnity insurance offers financial protection to a buyer (and a lender) where there is a defect in the title of property which cannot be resolved or represents an ongoing residual risk.
The title to a property may contain matters that are considered to be defective to a party's interest or proposed interest in the property. These defects may restrict, or prevent, the way in which a property can be used or developed, for example in the case of:
- Restrictive covenants
- Rights of light
- Other third party rights including rights under the Commons Act 2006
- An absence of necessary easements
Such defects may cause financial liability and exposure to financial loss, for example in relation to chancel repair liability or overage provisions. This liability and exposure might also pass to successive owners of the property.
Legal indemnity insurance provides an insurance solution to help meet the demands and needs of a property owner or developer (or their lender) to work within certain timescales or budgets without leaving them exposed to the financial consequences of not dealing with, or not being able to deal with, a title issue head on.
For example, it may be impractical to obtain a release of restrictive covenant from every party that has the benefit, or it may not be feasible to establish who has the benefit of a covenant.
The need for a legal indemnity insurance policy may address a lender's requirement to have additional security that having a charge over a property does not create. Where a defect in title is enforced, the value of the property may be affected and other financial losses could arise would prevent the lender from recovering the full amount of a loan or mortgage from the proceeds of a sale of the property.
Policies can be provided to protect any party who holds, or may hold in the future, an interest in the property. In certain circumstances, policies can also be provided to parties who will continue to retain a financial liability in relation to a prior property interest.
Legal indemnities are specialist insurance solutions to problems associated with property title and ownership in cases of:
- Sale/purchase of land and buildings
- Administration of trust funds
- The realisation and distribution of estates