What is restrictive covenant indemnity insurance?
29 April 2021
One type of insurance which can seem complex is restrictive covenant indemnity insurance. It is, however, fairly simple when you know more about it. A restrictive covenant indemnity insurance package is normally taken out when someone buys a property and then finds out the seller (or previous owner) has fallen foul of a restrictive covenant land clause. You may also see this sort of cover called a ‘breach of leasehold covenant indemnity’ policy but it is the same thing.
It is key to note you cannot buy this type of insurance direct. You would first need to speak to a solicitor for them to source a quote and explain what it covers in more detail.
Examples of restrictive covenant clauses
In legal terms, restrictive covenant details are set out in the property deeds and indicate a right in land. A few common examples of restrictive covenants are:
– No building shall be constructed on said land other than dwelling houses without garages and other outbuildings for dwelling purposes therewith.
– No business or trade of any sort is permitted to be carried out on said land.
When do you need restrictive indemnity cover?
You would normally need this sort of insurance when a restrictive covenant clause is breached in some way. You might, for example, unwittingly operate a business from the property when a restrictive covenant forbids this. The party that has rights to the land might then look to enforce the covenant through legal channels.
This could very well see you lose out financially. It could also have other consequences, such as seeing you having to cease trading or take down buildings. This sort of insurance is also sometimes taken out when the property seller has breached a restrictive covenant which they cannot fix and the property buyer wants protection in place for the future.
What does restrictive covenant indemnity insurance guard against?
It is often helpful for people to know exactly what this sort of insurance covers. Common examples include:
- Cover for reasonable professional and legal fees a restrictive covenant case might bring
- Cover for out of court settlement costs requested by the insurer
- Damages, expenses or compensation (not including fines or penalties) an order requires you to pay
- Insurance for costs which altering or re-instating the property in line with the covenant brings
- Any other costs or expenses you might incur due to an insured risk
Of course, this is only a general idea and you should always carefully read any policy you take out to see what is covered.
How much does this type of policy cost usually?
While it is hard to say for sure, the general cost for this cover ranges from £150 to £500. The cost will depend on the value your insured property has and the premium itself is a one-off cost. One key point to note is that, although the cover can be for the new owner, it is the seller who is usually asked to arrange and pay for it.
It is a must, therefore, for the buyer and seller to confirm who is responsible for taking out and paying for indemnity insurance. The good news is that the policy will last forever and continues to cover the buyer, even if they sell the property afterwards. The policy will also cover future owners and occupants (plus their mortgage providers) automatically.
Restrictive covenant indemnity insurance is useful
While there are many types of insurance that offer effective protection, this type can often come in very handy. It is particularly useful for buyers of a property who think the seller or previous owner might have breached a restrictive covenant. It is also useful to give future protection to sellers themselves and guard against any nasty surprises.
The conveyancing process is more complex than most people assume, and can involve a number of third parties. Redkite Solicitors conveyancing team have vast experience within this area of law, and have come across pretty much every type of problem that can occur. For further information on how our dedicated conveyancing solicitors can help you through your property purchase or sale contact us today. Click here
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.