FTB - Restrictive Convenants and Indemnity Insurance

Bickers1

We are in the final stages of buying our first house. The freehold property report indicates that a restrictive covenant has been broken relating to the building of the extension. The extension did have planning permission and has building regulation approval. The property is ex-LA.

Our solicitor has approached the vendor's to purchase indemnity insurance but the vendor has refused. We have been quoted a price of approx £150 to have our own policy (including arrangement fees)

I have done lots of research on this and now my head is spinning! My questions are...

1 - Is the £150 a one-off payment?
2 - If the worst were to happen and someone tried to enforce the covenant would the indemnity insurance compensate us for the loss of value in the property if the extension had to be removed (effectively turning a 5 bed property into a 3 and leaving a deficit in our mortgage)
3 - Is it more likely that compensation would be sought instead of removing the extension?
4 - If we were to sell the house in the future would the policy cover future buyers or would their solicitor be asking us to purchase another policy on their behalf?

Any advice appreciated!

poppysarah

You need to investigate the terms of the indemnity policy you have a quote for.

Richard_Webster

You need to investigate the terms of the indemnity policy you have a quote for.

That's right but subject to anything OP' solicitor tells him to the contrary Would suggest answers as follows:

1 - Is the £150 a one-off payment? Yes, but when you come to sell if there is no element of inflation proofing on the policy you will have to get an increase in cover. Most indemnity insurers work out their premiums in £50,000 bands of value so unless you are buying for a figure divisible by 50,000 get you solicitor to round the cover up to the £50,000 above
2 - If the worst were to happen and someone tried to enforce the covenant would the indemnity insurance compensate us for the loss of value in the property if the extension had to be removed (effectively turning a 5 bed property into a 3 and leaving a deficit in our mortgage) If it got that far, yes, but it is more likely they would agree a nuisance value payment to the covenant holder - because usually it is difficult for them to prove very much in the way of actual loss to any land retained by them because of an extension.
3 - Is it more likely that compensation would be sought instead of removing the extension? Yes, see above
4 - If we were to sell the house in the future would the policy cover future buyers or would their solicitor be asking us to purchase another policy on their behalf?Yes, but as mentioned above you might have to pay to upgrade the cover if the then sale price was more than the cover in the policy. After 20 years of breach the policy will not be needed because it will be unenforceable because of an old case called Hepworth v. Pickles

Unless the house is really sought after or amazingly cheap for what it is, the sellers will have a job selling it without an indemnity policy so I would be inclined to dig my heals in and tell them they must pay for it and if you don't proceed their next buyers will need a policy.