Indemnity Insurance – better to be safe than sorry
Having good indemnity insurance (and most importantly the right insurance!) is an essential part of any property transaction, but you probably don’t realise how many aspects of your transaction might include (or perhaps should include!) an insurance policy.
This is the obvious one. If you are buying a new property, you will need to cancel any existing policy and take out a new one, or move your policy to your new address. If you already have a policy it will be specific to your existing address, and so will not automatically cover your new policy.
What’s more, you may need a different level of cover. Insurance policies usually specify how many rooms you have, the location and the value of the contents. If any of that changes, you need to let your insurance company know, or your insurance policy could be invalid and if you are robbed or the property burns down, you could find that you cannot make a claim.
In addition to insuring what’s in the building, you need to insure the building itself. If, before you bought the property, you were in rented accommodation or still living at home, this wouldn’t be necessary, but if you are now going to own your own place, you need to insure the property.
What’s more, if you are buying with a mortgage, the mortgage company will insist that the property is insured as if it burns down, they will want to make sure that they get their money back from the mortgage company. Sometimes mortgage companies will encourage you to use their insurers. At other times, they will just want to see evidence that it is insured, and that their interest in the property is noted on the policy.
There is, however, something unusual about building insurance. With contents insurance you don’t need to take out the policy until you actually own the property, which is when completion takes place, or possibly not even until you actually move any of your possessions in.
With buildings insurance you MUST take out the policy as soon as EXCHANGE takes place, because even though you don’t own the property, you have an interest in it, because you are committed to buying it.
Even if something should happen to it between exchange and completion you may still be committed to proceeding with the purchase, so that could mean you have to buy a house that has fire damage, even though it didn’t have that damage when you exchanged. If you have insurance in place, your policy will compensate you for any losses you suffer, such as the cost of repairs and the cost of housing your family whilst any repairs are being carried out.
If you are selling a property, you must keep your existing insurance policy in place until completion, even though the buyer has (or should have) taken out their own policy. If their policy is invalid for any reason, and you don’t have a policy in place, you may find you have no protection if the property burns down or blows up.
This is an aspect of a property transaction that people often find very strange if they haven’t come across it before.
Depending on where your new property is, you might have to contribute towards the costs of a local church. This might be a parish church, but that isn’t always the case. If you are buying property within an area that used to be rectorial (which means part of a rectory or glebe), then you may have an obligation to contribute towards the cost of repairs to the chancel of the medieval-founded Church of England parish church or Church in Wales church which that glebe land supported.
This can still be invoked by the church council of some parishes, irrespective of your religion, affiliation to the church or length of time that you’ve owed the house. There have been a few cases where the costs to the householders has been very high, due to the high cost of the repairs and limited number of houses in the parish, so it’s something we take very seriously.
In order to protect you from this, one of the many searches we carry out on the property when you first instruct us, is a chancel repairs check, to see if your property is in an area where you could be expected to contribute towards church repairs.
If you do, then we can arrange for you to take out a chancel insurance policy, so that if the church does make a claim, you simply claim on the policy. Chancel claims are quite rare, so insurance policies are actually quite low. In fact, sometimes it’s cheaper to just take out the policy instead of doing the search, as the cost of the search can be more!
This is another area that people who are new to the property industry won’t have come across before. Sometimes when you are buying a property, it will have a problem with the title or the property, but we can take out an insurance policy so that if there were to be a claim or an issue further down the line, you have some protection.
It isn’t possible here to list all the different types of issue that we could face, and the different types of policy we could take out for you (or what they might cost) but we can give you a few examples to give you an idea of the types of situation you could face.
This could arise where the developer of the land (ie the person or company that built the property) put a restriction on what you can do with the property going forward. So if the builder built a row of houses, he may put a restriction on all the houses saying that none of owners could redevelop or extend the property beyond a certain size.
You may now come along and buy the property, and want to extend it, and the council may be happy to give you planning permission to do your extension, but the original developer could still stop you, even though the property may have gone through several hands since then. Depending on how long ago the restrictive covenant was put in place, how active the original developer is (they may no longer exist) and the extent of the works you want to do, we can help you take out an insurance policy.
This would mean that if someone did try to enforce the covenant, the insurance policy would cover any losses you suffer. It’s important, however, that you discuss this with us BEFORE you do anything yourself. For example, if you make any attempt to contact the holder of the restrictive covenant, that could mean that no insurer will provide you with cover, so please don’t do anything without telling us.
Flying freehold and creeping.
A flying freehold is where part of your freehold property overhangs someone else’s property. This could be where you have a row of terraced houses, and your upstairs bedroom is over their hallway or perhaps your property has a balcony which overhangs your neighbour’s garden.
A creeping freehold is the opposite, where part of your freehold property creeps underneath a neighbouring property, such as if you have a basement which is in part under a neighbouring property.
It doesn’t happen often, but it can be a problem for a mortgage company who will want you to take out an insurance policy to protect you (and them) in the event of any problems. This is because a true freehold is one where you have all the rights over the land, whereas with a flying or creeping freehold, your rights are weakened such as you don’t have full and automatic rights of support, meaning that the title is defective.
All property transactions contain an element of risk. With our help, and the right insurance policies in place, you can significantly reduce that risk.
Contact our Residential Conveyancing Team today to discuss any insurance queries you have.
Disclaimer – our articles are designed to give you guidance and information. There is no substitute for proper direct advice, particularly as everyone’s circumstances are different. If anything in this article may affect you, please contact us for advice that is specific to your circumstances.