Title indemnity insurance, explained
Being told a week before exchange that the title has a defect is alarming. It is also common, and it is usually a question of the right policy rather than a reason the purchase cannot go ahead.
What the policy actually does
An indemnity policy does not fix anything. The defect stays exactly where it was. What the policy does is cover the financial loss if the defect turns into a claim: enforcement action by a council, a beneficiary of a covenant deciding to enforce it, a missing right of way being challenged.
That is usually enough for the lender, because the lender’s concern is the value of its security rather than the tidiness of the title. It is generally enough for a buyer too, provided they understand which risk has been insured rather than removed.
The defects that come up most
No building regulations sign-off
A previous owner converted a loft or removed a wall and never obtained the final certificate. The policy responds to enforcement action by the local authority.
Restrictive covenant breach
A historic restriction on the title was broken at some point. Whoever benefits from it could in principle still enforce it, and the policy covers the loss if they do.
Missing rights or access
A right of way, or a drainage route, that everyone has used for decades and nobody ever formally granted.
Chancel repair liability
An old obligation attached to land in certain parishes to contribute towards repairs to the parish church. Rarely enforced, cheaply insured, routinely checked.
The one thing that voids it
Approaching the person who could enforce the defect will normally invalidate the policy, and often makes the risk uninsurable afterwards. Asking the council whether they mind about the loft conversion, or writing to the freeholder about the covenant, is the classic way a routine problem becomes a serious one.
If a policy is being considered, take your conveyancer’s advice before contacting anybody about the underlying issue. Whether a policy is appropriate at all, and on what terms, is a judgement on the individual title.
Written as general information for England and Wales, not as advice on an individual matter. Where a lender’s own requirement applies, it sits in Part 2 of the UK Finance Mortgage Lenders’ Handbook, which lenders amend without notice.