Indemnity Insurance won't cover structural defects - ideas?

Babooshki

Hi, in process of purchasing a house that has had numerous internal changes and an extension added at the back. None of these alterations/additions seem to have got planning permission so our solicitor requested an indemnity insurance policy from the sellers.

Unfortunately, it states that one of the exclusions to the policy is if structural defects are identified in the survey which is the case here as the full survey on the property highlighted the above lack of planning/defects and especially commented on the removal of chimney breast-stacks which are currently being inadequately supported; this policy is therefore void if taken out. Both the seller's solicitors and our solicitor have said they cannot find an alternative indemnity to cover this.

We have drafted a letter asking for a reduction in the purchase price as we now have to accept the risk involved with the lack of indemnity. We have been very cautious in the amount though, how much is a reasonable figure to deduct for this type of problem?

Our solicitor has stated he may also need to inform the lender upon our instruction. What I really want to know is there any type of warranty/indemnity that will cover us as we would obviously prefer to have this in place, does nayone know? Thanks for your thoughts.

loubel

You will not be able to insure against a known structural defect. You will need to establish how much it will cost to rectify the problem and reduce your offer accordingly, or tell the seller they need to sort the issue out before you will buy.

As your solicitor has pointed out, he will have to notify your lender that there is both a structural and a legal defect with the property which cannot be insured and so your lender may reduce your offer, impose a retention on all or part of the mortgage advance until the problem is rectified or even withdraw their offer altogether.

You may just decide to walk away and find a properly built property.

Babooshki

Thank you for your response. It was a properly built house, and the survey has stated that its current state is commensurate with what is expected of a Victorian 104-year old property, however unfortunately what's been done to it inside previously by irresponsible owners has not been effected properly! What a mess...

If the defect is rectified before exchange, would this help with the lender situation? This is another blow to us in an already fraught situation. We have already been provided with a quote to remedy the chimney stacks; would it be worth requesting the vendors for the work to be remedied? Thanks.

kingstreet

Indemnity insurance is designed to cover your legal costs if the council prosecuted you for the property not having planning permission and/or building regulations approval.

This is a blind alley if you want protection against the property defects.

The only option is for the vendor to put the property right before exchange and you continue to purchase at the agreed price (if the valuation was at that amount) or for you to purchase at a reduced price and get any remedial work done yourself. However, the lender will reduce the amount of your mortgage accordingly. You cannot "borrow a bit more to do the work" as many people think.

jbainbridge

You need to ask yourselves if you want to take the property on in this state? Even if you do not continue with the purchase the money spent on the survey was not wasted.

Babooshki

Hi Kingstreet, so for instance if we asked for a reduction of £10k then the subsequent mortgage offer would be reduced in line with the new purchase price? If so, that is what we expected and we are absolutely fine with that & to do get the work done ourselves. We do not wish to borrow more than absolutely necessary anyway.

Babooshki

Hi jbainbridge, if not for the fact that stock is so frustratingly scarce and prices rocketing another 20-30k in our area since we first secured this house a few months ago, we would indeed look elsewhere. We are in n-e London and it is a real problem here. Anything decent also gets snapped up within days of being marketed. The lack of permissions and chimney prob is worrying, but it is a decent-sized good house and what we need for our family. Ugh. Big dilemma.

G_M

loubel wrote: »

You will not be able to insure against a known structural defect.

or an unknown structural defect either.

You can only insure against council enforcement of Planning or Building regs rules.

Though as these can only be enforced within (I think) 4 and 1 year respectively, the insurance is totally pointless anyway.

<sebb>

Why don't you just get the chimney stack supported. Mine was identified in the survey as being unsupported and it was a condition of the mortgage to have it fixed. Two days work and it cost £500 including skip hire. Had no problem with the indemnity though.

Indemnities are generally not worth the paper they are written on anyway. We only got outs to satisfy the lender.

Odie_Schmodie

I am in a very similar situation, although haven't (yet) had the lender's valuation (had an independent survey done which pointed out various problems with a turn of the century Victorian terrace). In my thinking, the key concern is safety. My survey recommended for all the problem bits (including a dodgy chimney breast removal) that a Structural Engineer is called in and asked to do a detailed report. Having talked to two structural engineers I undersand they can do an initial inspection for 300-450 pounds to provide an initial estimation for the range of works needed and even a ballpark figure for cost. I think no future buyer will be convinced by an indemnity insurance if the same problems come up in a survey if and when I sell on. The key thing is to try and rectify whatever problems there may be. I don't konw what else is wrong with your property but I decided that it was impossible to do a guess-timate about all sorts of problems on my own and I would recommend you look into either hiring an engineer or asking the vendor to do this to facilitate the sale. Good luck! Let us know how you get on!

Tancred

Babooshki wrote: »

Hi, in process of purchasing a house that has had numerous internal changes and an extension added at the back. None of these alterations/additions seem to have got planning permission so our solicitor requested an indemnity insurance policy from the sellers.

Unfortunately, it states that one of the exclusions to the policy is if structural defects are identified in the survey which is the case here as the full survey on the property highlighted the above lack of planning/defects and especially commented on the removal of chimney breast-stacks which are currently being inadequately supported; this policy is therefore void if taken out. Both the seller's solicitors and our solicitor have said they cannot find an alternative indemnity to cover this.

We have drafted a letter asking for a reduction in the purchase price as we now have to accept the risk involved with the lack of indemnity. We have been very cautious in the amount though, how much is a reasonable figure to deduct for this type of problem?

Our solicitor has stated he may also need to inform the lender upon our instruction. What I really want to know is there any type of warranty/indemnity that will cover us as we would obviously prefer to have this in place, does nayone know? Thanks for your thoughts.

Bottom line: do you like the house? No - walk away. Yes - shut up and buy it!

These 'structural defects' are not unusual in houses of this type and can be remedied, at a cost of course. The price should already reflect that the house needs some remedial work done to it.