When buying or developing a property, you may come across restrictive covenants in the title deeds. These are legally binding promises that restrict how the land can be used – for example, banning certain types of building, limiting extensions or preventing commercial activities. While some covenants are outdated or difficult to enforce, others can still pose a serious risk.
If a covenant is breached, the property owner could face legal action, damages or even an order to reverse the unauthorised work. This is where restrictive covenant indemnity insurance comes in – providing financial protection against the cost of enforcement.
What is restrictive covenant indemnity insurance?
Restrictive covenant indemnity insurance is a specialist policy that protects property owners, buyers and lenders against financial losses if someone seeks to enforce a covenant. Cover usually includes the cost of defending legal proceedings, paying compensation, reinstating or demolishing unauthorised works and even offsetting a reduction in the property’s market value.
Unlike standard insurance, this cover is typically arranged during the conveyancing process by a solicitor. Once purchased, the policy usually lasts indefinitely and can even pass to future owners and mortgage providers.
When and why you might need it
There are several situations where indemnity insurance may be necessary. If you are buying a property and it is unclear whether covenants are enforceable, a policy can protect against unexpected claims. You might also need it if you plan to alter or extend your home in a way that risks breaching a covenant.
Insurance is particularly valuable if a past breach has already occurred – for instance, if a previous owner added an extension without consent. In such cases, indemnity insurance offers a safeguard against future enforcement.
Mortgage lenders often insist on this cover before approving finance, as it protects their interest in the property. Compared to applying to remove or vary a covenant through the Lands Tribunal – which can be costly and uncertain – insurance provides a quicker and more practical solution.
What does it cover?
A typical restrictive covenant indemnity policy will cover:
- Legal defence costs if enforcement action is taken
- Out-of-court settlement payments
- Compensation ordered by a court
- Costs of demolition, reinstatement or altering unauthorised works
- Loss in market value caused by enforcement action
It usually protects against both existing and historic breaches, provided they were not deliberate. However, it will not cover intentional future breaches – for example, if you knowingly go ahead with work that directly contravenes a covenant.
One of the key advantages is that most policies last indefinitely and automatically transfer to future owners and lenders. This makes them useful not just for your own protection, but also for making the property easier to sell in future.
How much does it cost and who arranges it?
Premiums are generally a one-off payment rather than an annual fee. Costs can range from as little as £150 for low-value or low-risk properties, up to several thousand pounds for high-value sites with complex covenant issues.
The policy is usually arranged by your conveyancing solicitor during the purchase process. In some cases, the seller may pay for it to reassure buyers, while in others it may be a condition required by your mortgage lender.
Pros and cons of taking out the policy
The main advantage of indemnity insurance is peace of mind. It protects you from potentially large legal and financial consequences, and can prevent problems with lenders that might otherwise delay or derail a property transaction.
On the downside, the insurance does not remove the covenant itself – it only shifts the financial risk. Policies may also exclude cover for any new breaches you create in the future. For this reason, it’s important to check the wording carefully and take legal advice before relying on a policy.
Expert advice on the next steps
Restrictive covenant indemnity insurance is often a simple, cost-effective way to manage the risks associated with covenants. It can protect against expensive claims, smooth the mortgage process and reassure future buyers.
If you’re buying or developing property and restrictive covenants appear in the title, it’s worth speaking to a commercial property solicitor about whether indemnity cover is appropriate. At Osbourne Pinner Solicitors, our property team can advise on covenant risks, arrange indemnity insurance and help you move forward with confidence.
Discuss your situation in a free 30-minute consultation – via video call or at our offices in Harrow, Canary Wharf, Piccadilly Circus or Manchester. Arrange a consultation using the form below, call 0203 983 5080 or email [email protected].
