The register of title to a property proves who the legal owner is for that property or piece of land. These documents of ownership are usually called title deeds. In certain instances there can be defects to these documents, for example documents may be missing or illegible. Sometimes, it may be that the correct planning permission has not been obtained for the property or that building regulations certification was not obtained when the property was built.  It is also common for works or uses to have occurred at the property in breach of restrictive covenants. These types of defects can have an impact on future sales of the property.

Quite often the defect will only be discovered when a property is being sold, when the purchaser's conveyancer is investigating the title to the property.  As any defect can lead to the new property owner being financially liable or even being forced to give up title to the property, these defects can affect a potential purchaser's decision regarding whether or not to buy the property. Indemnity insurance policies offer protection against these types of defects. When buying or selling a commercial or residential property and defects are discovered, it is important that an indemnity insurance policy is put in place to ensure that the purchaser is protected and the defects do not affect the sale.

There are various defects which may require an indemnity insurance policy. The following is not an exhaustive list but points to the most typical:

• Lack of planning permission or building regulation certification policy
• Breach of restrictive covenant policy
• Insolvency Act policy
• Absence of easements policy
• Good leasehold policy
• Missing information policy
• Missing landlord policy
• Lost title deeds policy
• Flying freehold policy

There are also various issues which can affect the choice of the most suitable insurance policy, depending on the defect in your situation. Read on for pointers to help you make the right selection to ensure the insurance policy is in fact worth the paper it’s written on.

1: It is worth remembering from the outset that the legal indemnity policy does not actually remove the defect from the title, it is there in the event that the defect results in financial loss.

2: Typically, the insurance policy is transferable to any successive owners, but the property owner may need to increase the insured sum if the property increases in value.

3: Make checks on your chosen insurer including credit checks, and if possible, look at their track record for paying out on claims made.

4: If you are in doubt about anything which could invalidate the insurance, let the insurer know. It is also wise to keep a list of the information provided to the insurer. There may also be the option to have a clause added that prevents the insurer from avoiding cover due to non-disclosure.

5: Check the policy includes everything required, including the specified defects in the title and all expected losses. Typically, the policy would include cover for loss relating to damages or compensation, cost of altering/reinstating all or part of the property, reduction in market value, defence legal costs and any costs incurred with the consent of the insurer.

6: Is the indemnity limit enough? You should ensure that the risk associated with the defect is adequately covered. Think about the fact there may be repeat claims and you will also need to ensure it covers legal costs. You should remember that the policy would cover the value of the property at the time it’s taken out.

7: Read the small print: don’t assume that the standard terms are in order. Check the terms very carefully and look out for provisions that could enable the insurer to avoid liability. Also check the excess required when making a claim, it may be excessive in relation to any claim you’re likely to make.

8: When there’s the chance of a claim being made, even if it’s a third party who might make a claim, give notice to your insurer as it’s more than likely, there will be a clause about notification.