Indemnity Policy (covenants)

girl_withno_name

Hi - wondering if someone could help clarify our situation regarding indemnity policies...

We're in the process of purchasing a property which has a number of covenants, including one prohibiting dishes and aerials on the property, with the vendor's solicitor requesting a covenant for indemnity. Our solicitor has told us this means we are buying the property subject to any breach there may be and cannot make any claim against our seller if the breach occurred prior to our purchase of the property.

However, our solicitor is also asking their solicitor to provide an Indemnity Policy "to cover should breach if there is a satellite dish at the property and provide for any costs that may be incurred in the future."

To me these two things seem to contradict each other - one has us taking responsibility for breaches, the other covering costs if action is taken. Please could someone help clear up my confusion?

Richard_Webster

An indemnity policy for breaches of restrictive covenants will only cover existing breaches at the time the policy was taken out - not future ones!

girl_withno_name

Ok and this would make sense in itself - but our solicitor is also telling us that we are also responsible for breaches which occurred prior to our ownership... this together with an indemnity policy covering existing breaches doesn't make sense to me??

DVardysShadow

girl_withno_name wrote: »

Ok and this would make sense in itself - but our solicitor is also telling us that we are also responsible for breaches which occurred prior to our ownership... this together with an indemnity policy covering existing breaches doesn't make sense to me??

As I see it, a breach of an aerials and dishes covenant can be rectified quickly. You just take them down.

What is going on between the solicitors is stupid. Your vendors demanding and indemnity from you is pretty much a waste of your time and your solicitor's time. Your solicitor is saying sauce for the goose is sauce for the gander - if you must indemnify them, they must indemnify you

girl_withno_name

DVardysShadow wrote: »

As I see it, a breach of an aerials and dishes covenant can be rectified quickly. You just take them down.

What is going on between the solicitors is stupid. Your vendors demanding and indemnity from you is pretty much a waste of your time and your solicitor's time. Your solicitor is saying sauce for the goose is sauce for the gander - if you must indemnify them, they must indemnify you

I'd be more concerned about other covenants about walls, fenced, boundaries, hedges, etc. which either cannot be moved, cannot be erected or must have their size & style agreed before being put in place - I don't know whether these have already been broken or not.

If they're indemnifying us and we're indemnifying them (which would explain why this all seems backwards and contradictory) - what would actually happen if action was taken for breach of covenants? Surely that's a stalemate situation?

DVardysShadow

girl_withno_name wrote: »

If they're indemnifying us and we're indemnifying them (which would explain why this all seems backwards and contradictory) - what would actually happen if action was taken for breach of covenants? Surely that's a stalemate situation?

You are each indemnifying the other against your own breaches. There are I suppose arguments which might justify either of you being sued for a breach by the other - and it possibly sticking. The indemnity would allow you to put the consequences for the breach on the other. I suppose.

Richard_Webster

Buyer is lumbered with any breaches that started with a previous owner and are continuing, although after 20 years continuous breach they become unenforceable under Hepworth v. Pickles.

The person who first entered into the covenants is liable forever, his successors only during their period of ownership. Therefore theoretically a covenant holder could sue his original buyer for breaches committed after his ownership and that buyer would have been wise to take an indemnity from his buyer in the transfer to the buyer and so on with a chain of indemnities right up to the present owner. In the case of a restrictive covenant there is no reason to go to all the trouble of finding the original covenantor, because the present owner is liable under the rule in Tulk v Moxhay (18th century case about Leicester Square) but this is necessary in the case of positive covenants (e.g. for fencing) which explains why enforcing fencing covenants is a real waste of money and time.

girl_withno_name

Right - I now understand why they're asking for covenant for indemnity, since they were the people who first entered into the covenants and this avoids them being liable forever, passing the liability to us as the new owners.

Still confused how this can be put in place while we also ask for an indemnity policy to be put in place? Doesn't this take liability away from us again (for existing breaches at the time the policy was taken out)?

I feel really stupid at the moment because I'm just not getting it and can only guess there's a vital point which I'm missing here... the solicitor isn't helping either!

loubel

It sounds like you want an indemnity policy against existing/past breaches of covenant (by the seller) and the seller wants a personal indemnity from you against possible future breaches (which as Richard says, you would in turn get from the buyer when you sell in future).

I can only make an assumption though. Your solicitor really should be able to explain what is being asked for by both sides.

Richard_Webster

An indemnity covenant and an indemnity policy are not the same.

The insurance pays out if you are liable - doesn't stop you being liable if you are.

Generally insurers try to find out as much as they can about the strength of the claimant's case - his right to enforce the covenant and his actual loss and then negotiate and try to pay as little as possible.

girl_withno_name

Ok, I think I get it! Someone please correct me if I'm still wrong or confirm that I'm now "with the programme"?

- We are responsible for future breaches of covenants.

- The vendors are asking for covenant for indemnity to stop them being forever liable for breaches of covenant, this passes responsibility to us (as buyers) for past breaches of covenants and would in turn get passed to the next buyers.

- Therefore action could be taken against us for any breach of covenants, regardless of who actually breached the covenants or at what point in time, before or after our purchase.

- The indemnity policy covers existing breaches at the time the policy was taken out (not future ones) and is simply an insurance which allows us to claim costs if action is taken.

So:

- if action is taken against future breaches, we're "on our own" with ensuring we comply and paying any related costs

- if action is taken against past breaches, we may (probably) still need to ensure we comply but could claim on the indemnity policy for any related costs