When purchasing a property in the UK, various legal checks and protections come into play to ensure a smooth transaction. One such protection is restrictive covenant indemnity insurance, a type of insurance that safeguards buyers from potential legal issues arising from restrictive covenants on a property. But what exactly is this insurance, and when might you need it?

Understanding Restrictive Covenants

A restrictive covenant is a condition placed on a property that limits how the owner can use or develop the land. These restrictions are typically imposed by a previous landowner and are legally binding. For example, a restrictive covenant might prevent you from building extensions, running a business from the property, or even putting up certain types of fencing.

While some restrictive covenants are relatively minor, others can be quite limiting and may affect the property's future use or value. Since these covenants are legally enforceable, breaching them can lead to legal action, which is where restrictive covenant indemnity insurance becomes essential.

What is Restrictive Covenant Indemnity Insurance?

Restrictive covenant indemnity insurance is a type of insurance policy designed to protect homeowners from the financial risks associated with breaching a restrictive covenant. If you unknowingly breach a covenant, the person or entity that imposed the restriction may take legal action. This could result in costly repairs, alterations, or compensation. Indemnity insurance covers these potential costs, giving you peace of mind when purchasing a property that has restrictive covenants in place.

When Might You Need Restrictive Covenant Indemnity Insurance?

You may need restrictive covenant indemnity insurance if:

  1. Uncertainty Around Covenants: If the property you’re buying has restrictive covenants, but it’s unclear whether these restrictions are still enforceable, indemnity insurance can provide protection in case a claim arises in the future.
  2. Planned Alterations: If you're planning to make changes to the property, such as building an extension or converting part of the home, indemnity insurance can protect you against potential legal action for breaching an existing covenant.
  3. Outdated Covenants: Some restrictive covenants are old and may no longer seem relevant or enforceable. However, the risk of enforcement still exists, and indemnity insurance can offer a safeguard in such situations.
  4. No Contact with Covenant Holder: In some cases, it might be impossible to contact the original person or entity who placed the covenant. This makes getting direct consent difficult. Indemnity insurance covers you in case they resurface and attempt to enforce the covenant.

What Does Restrictive Covenant Indemnity Insurance Cover?

This insurance typically covers:

  • Legal Costs: Should someone take legal action for breaching the restrictive covenant, the policy will cover the legal expenses.
  • Compensation: If the court orders you to pay compensation for breaching the covenant, the indemnity insurance will pay this amount.
  • Alteration Costs: In cases where you’re required to undo changes made to the property (like demolishing an extension), the insurance covers the costs of these alterations.

How Do You Get Restrictive Covenant Indemnity Insurance?

Typically, your solicitor will arrange restrictive covenant indemnity insurance during the conveyancing process. If they identify a restrictive covenant on the property, they may recommend that you purchase a policy. The cost of this insurance is generally a one-off premium, and prices vary depending on the property's value and the perceived risk of enforcement.

Can You Avoid the Need for Restrictive Covenant Indemnity Insurance?

In some cases, it's possible to track down the original covenant holder and request their consent for the intended changes. If they agree, you won’t need indemnity insurance. However, this can be a lengthy and uncertain process, and indemnity insurance is often a quicker and simpler solution.

Conclusion

Restrictive covenant indemnity insurance is an important consideration when buying a property in the UK, especially if there are any legal restrictions attached to the land. This insurance provides financial protection and peace of mind, ensuring that you won’t face unexpected legal costs or complications due to breaching a restrictive covenant. If your solicitor identifies any restrictive covenants during the conveyancing process, they will advise you on whether indemnity insurance is a sensible option for your purchase.

By understanding the role of restrictive covenant indemnity insurance, you can proceed with confidence, knowing that your property investment is protected.