What is an indemnity policy, and should you accept one?

You are three weeks from exchange and your solicitor emails to say the seller has "offered an indemnity policy" for the loft conversion. The seller's solicitor sounds relieved. Yours sounds neutral. Nobody has told you what the loft conversion is actually missing, or whether the stairs are safe. Worth slowing down slightly, because the policy is a way of moving on, and moving on is not the same as knowing.

What does an indemnity policy actually cover?

It is a single premium insurance policy, bought once, usually by the seller, which passes to you and to your lender. It covers a named defect in the paperwork. Common ones: no completion certificate for building work, no planning permission for an extension, a breach of a restrictive covenant (the deeds said no conservatory, there is a conservatory), a missing lease document, or no proof of a right of way over the drive.

The policy pays out if someone takes action over that defect and you lose money as a result. If the council served an enforcement notice, or a neighbour enforced the covenant, or the property lost value because of it, the insurer would cover the loss up to the sum insured, which is usually the purchase price.

Premiums for a standard defect are usually modest, often a few hundred pounds or less, and more for unusual ones. It is cheap because claims are rare. That is the point to sit with for a second.

What doesn't it do?

It does not make the extension safe, get the planning consent, or turn the loft into a legal bedroom. A building regulations indemnity covers the risk of the council taking enforcement action. It does nothing about whether the steel beam was sized properly. Since October 2023, councils in England can order changes to work that broke building regulations for up to 10 years after it was finished. In practice they rarely chase old work, so the risk is usually small, but it is not zero. The structural question is a separate one, and the policy is silent on it.

Most policies also stop working if you contact the council about the work. Asking building control "was this ever signed off?" can void the cover. So the usual instruction is not to ask, which is a strange position for a buyer.

And a policy covers you, not the next buyer's mood. When you sell, their solicitor will find the same gap and ask the same question.

When do solicitors reach for one?

When a document is missing, a chain is waiting, and the cheapest route to exchange is £60 of insurance. That is often a perfectly reasonable call. A covenant from 1928 about not keeping pigs is not worth a delay. Nor is a missing FENSA certificate for a window fitted in 2011.

A loft conversion, a removed chimney breast, a rear extension with no drawings or a knocked through wall are different. Here the paperwork gap points at a physical question, and the policy answers only the legal one. This is where you want a surveyor's opinion before you decide the policy is enough. Many lenders will accept a policy, but some may want proper sign-off for structural work, so check with your lender or broker.

What should I ask?

Ask your solicitor what the defect is, in one sentence, and what would have to happen for the policy to pay out. Ask whether the policy can be voided by contacting the council, and whether it names you and the lender. Ask what the alternative is: a regularisation certificate from building control, a retrospective planning application, or a covenant release, and what each would cost. Ask your surveyor whether the work itself looks right, separately from the paperwork. And ask the agent when the work was done and who did it, because the answer is often "the seller's brother in law".