Restrictive Covenant Indemnity Insurance Policy

5 min read
When you are buying a property where the seller, or a previous owner, has breached a restrictive covenant over the land, a restrictive covenant indemnity insurance policy can offer some protection, if the party with the right over the land tries to enforce the covenant at a later date. This type of policy is also called 'breach of leasehold covenant indemnity policy'.

The cost of buying possessory title indemnity insurance varies depending on the insurance provider and the value of the property. Indemnity insurance can't be purchased by you directly through the insurer as it requires the terms to be explained to you by a solicitor.

You should speak to your own solicitor to organise you a quote from the indemnity insurance provider.

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A Restrictive Covenant is a right in land and the details of the covenant are set out within the deeds of the property. Here are a few examples of a restrictive covenant:

  • Forthwith to erect and for ever after to maintain in good condition a spile fence along the boundary of the land marked "T" within the boundary on the said plan" - In this case T would be shown on the title plan registered to the property title.
  • No tall chimney shall be erected on the said land nor shall any building be erected thereon other than dwellinghouses with or without garages, and other outbuildings to be used therewith
  • No trade or business of any kind whatsoever shall be carried on nor shall any beer wines or spirits be sold on the said land or any building erected thereon and the said land and all buildings erected thereon shall be used for private residential purposes only

The need for indemnity insurance arises where a restrictive covenant is breached in some way. For example, if you do operate a business from home or you haven't maintained the boundary to your property or that you have erected a tall chimney. In cases where you have breached a restrictive covenant the party with the right over the land could look to enforce their right through the courts - the remedy would be to stop you working from the property or to get the boundary maintained or take down the tall chimney - all of which place the land owner in a financially adverse position.

Restrictive Covenant Indemnity Insurance is often taken out when a seller has breached a restrictive covenant which can't be easily rectified and as such the buyer wants to have insurance in place in the event the party with the right looks to enforce the covenant in the future.

NB Depending entirely on the individual circumstance and only if you can get your freeholder to agree to it, a restrictive covenant can be varied or removed via a Deed of Variation (click to find out more).

What does the insurance cover?

The restrictive covenant insurance Policy protects you if another person attempts to enforce or enforces restrictive covenants which affect your Property. The cover includes:

  • Reasonable legal and other professional fees and expenses which the Insurer allows or requests You in writing to incur so as to commence, defend or make a settlement in a legal action relating to an Adverse Matter (which may include making an application to a court or the Upper Chamber (Lands Tribunal)).
  • The cost of an out-of-court settlement relating to an Adverse Matter which the Insurer allows or requests You in writing to make.
  • Damages, compensation, costs and/or expenses (but not fines or other penalties) which You have to pay because of an Order.
  • The cost of altering, demolishing and/or reinstating all or part of the Property or anything built on it if this is required by an Order or is done with the Insurer’s written consent.
  • The amount by which the value of the Property is reduced by the effect of an Order.
  • Any money the Insurer allows You in writing to pay to a third party to free the Property from the Adverse Matter.
  • Any money (including capital expenditure and legal and other professional fees) which You have actually spenton the Property which has now been lost because of an Order.
  • Any other costs and expenses You incur with the Insurer’s written consent because of an Insured Risk.

You should read your own indemnity policy to see what your specific policy covers

How do you order the insurance?

You cannot get Restrictive Covenant Indemnity Insurance direct from an insurance provider. If you need to take out this insurance, your solicitor needs to do this for you. This means that if you breach a restrictive covenant during your ownership of the property, you'll have to wait until you sell to take out the indemnity insurance.

How much does indemnity insurance cost?

The indemnity premium is a one off payment and the value of the insurance depends on the value of the insured property and ranges from £150 to £500. You'll need to get your solicitor to arrange a quote for this. Although the insurance is for the new buyer/owner of the property, the actual cost is often covered by the seller as they, or the previous owners, caused the breach. The buyer should confirm with the seller on this point and if the seller is paying for the indemnity insurance then it may well be the seller's solicitor who takes out the indemnity insurance instead of the buyer's solicitor.

Does the indemnity insurance expire?

The duration of the policy is in perpetuity (it lasts forever). The policy continues to protect the buyer even after they no longer own the Property and extends automatically to future owners/occupants and their mortgage lenders.

Example of a Restrictive Covenant Indemnity Insurance

Click to see an example of a Restrictive Covenant Indemnity Insurance policy:
* This is only an example and you should speak to your solicitor to obtain your own indemnity policy for your own specific circumstances.
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