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Road adoption indemnity policy

Hi

Going through conveyancing at the moment and looking for a bit of help with an indemnity policy our solicitor has said we need...

I'm selling a 5 year old flat and it turns out the road is unadopted. The developer hasn't entered into a section 38 agreement and the council are not sure of when the developer will begin discussions about road adoption (they are still building on the estate). It's a leasehold flat and the developer is the landlord, so the land has never been transferred out of the developer's name - so no covenant about road transfers. Searching on this forum, it seems like this isn't an uncommon issue. I'm not sure if my solicitor should be quizzing the developer on their plans rather than the council though?

My buyer's solicitor wants us to provide an indemnity policy which is going to cost £180 - so we're not talking loads of money, but enough to make we want to make sure this is really necessary! In my mind the risk of the road not being adopted is pretty low, and I don't understand why I should need to pay for a policy that's going to cover my buyer rather than me. (The policy quote says it will be valid for 10 years or for the length of the mortgage term).

Is it normal for the vendor to have to pay for the policy? Should I just agree? Common sense tells me I should ask to see a few different quotes and go with the cheapest/best... but is this such an obscure kind of cover that I'd be silly to ask my solicitor if she's searched the market thoroughly?

thanks in advance! :)
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Comments

  • I'm struggling to see what benefit you will gain from an indemnity - perhaps someone more knowledgeable will explain?

    Surely all being well the road will be adopted. Is that the intention of the developer? Can you confirm it with them and get it in writing? If its not complete yet it can't be adopted - the council will only accept it once it is up to standard.

    Failing that the residents will become responsible for its upkeep and you will need to pay a fee.
  • davidmcn
    davidmcn Posts: 23,596 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    I'm struggling to see what benefit you will gain from an indemnity - perhaps someone more knowledgeable will explain?

    Surely all being well the road will be adopted.

    As with any type of insurance, it's to cover the risk of not all being well! If the developer fails to do what they're expected to, then either the residents will have to meet the cost of bringing the road up to adoptable standard, or it remains private and they'll have a continuing liability for its maintenance.

    I'm not sure what such policies pay out - possibly the dimunition in value of the property if it turns out to have a private rather than public road.
  • JimmyTheWig
    JimmyTheWig Posts: 12,199 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    In my mind the risk of the road not being adopted is pretty low
    I agree.
    So are you prepared to compensate the vendor if this low risk actually happens? Could you afford to do so?
    I don't understand why I should need to pay for a policy that's going to cover my buyer rather than me
    ...
    Is it normal for the vendor to have to pay for the policy?
    You don't have to pay for it.
    Like everything else about house selling, it is open to negotiation.
    When the buyer made their offer, they didn't know about this issue with the road. If they knew they would need to pay £180 for this policy then (technically) their offer would have been £180 lower.
    Until contracts are exchanged nothing is set in stone. You cuold refuse to pay it. They might pay it. Or they might proceed without it. Or they might pull out of the sale.
    As a general rule, the vendor pays for such policies.
    Should I just agree?
    How gutted would you be if your buyer pulled out because of it?
    Common sense tells me I should ask to see a few different quotes and go with the cheapest/best... but is this such an obscure kind of cover that I'd be silly to ask my solicitor if she's searched the market thoroughly?
    Assume you won't get it much cheaper. Maybe for £150 by shopping around. £30 doesn't get you much solicitor time. To find a policy that was £30 cheaper would probably cost you more than £30 in paying the solicitor.
  • I agree.
    So are you prepared to compensate the vendor if this low risk actually happens? Could you afford to do so?

    Yes, but surely an indemnity would not pay the maintenance fees for the estate?

    I'm still unclear what the 'benefit' of the indemnity is.
  • JimmyTheWig
    JimmyTheWig Posts: 12,199 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    Yes, but surely an indemnity would not pay the maintenance fees for the estate?

    I'm still unclear what the 'benefit' of the indemnity is.
    I've got no idea.
    But in some ways that's a question that the OP's buyer needs to know the answer to. The OP won't get any direct benefit from the policy at all.
  • There is a public liability risk with an unadopted road. If there is a pothole or other defect in the surface and someone trips and injures themselves, then you may be liable for any compensation, loss of earnings, etc.

    Such a claim, while very unlikely, could run into millions (imagine a trip on an unstable surface leading to a fall with head injury so that the person cannot work for the estate of their life and requires lifelong nursing care ). The claimant will likely sue anyone and everyone who has anything to do with the road, therefore the current house owner is potentially at risk of a massive claim.

    The buyer's solicitor is correctly warning their client that the property comes with a major risk to theit wealth, and has asked that an insurance policy is in place before exchange.

    Of course, the buyer will need to keep paying for the policy after purchase, unless they wish to just take the road at personal risk, or the council adopt it.
  • We were in a similar position many years ago but we were the buyer of the property. Not sure if the same thing would happen now but our mortgage company wouldn't lend on the property without the indemnity policy. Luckily the seller had no queries (or as far as we knew anyway) & it all went ahead with no more problems.
  • JimmyTheWig
    JimmyTheWig Posts: 12,199 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    We were in a similar position many years ago but we were the buyer of the property. Not sure if the same thing would happen now but our mortgage company wouldn't lend on the property without the indemnity policy. Luckily the seller had no queries (or as far as we knew anyway) & it all went ahead with no more problems.
    Are you able to answer jbainbridge's query about what the policy actually gets you? (Other than a mortgage, of course!)
  • Oops. I missed the point a bit.

    I think in this case the indemnity is a bit different. The theoretical risk with an unadopted road is the person who owns it may, in the future, withdraw their permission for you to use their land as a right of way.

    The result is that you may be left with no way to legally enter or leave your house.

    This could result in severe devaluation of your house and big legal costs, so the indemnity is there to help pay for those costs in case a land owner later pops up out of nowhere and tries to block your access.
  • Are you able to answer jbainbridge's query about what the policy actually gets you? (Other than a mortgage, of course!)


    For our indemnity policy it was to cover us if there were any issues with things like drainage etc. As the roads were unadopted the homeowners would have been liable for certain costs in the event of burst pipes, road maintenance etc but the indemnity policy would have paid out in these circumstances. It may be different for the OP as the indemnity policy our seller had to pay for was also for issues surrounding the water pipes as the council & the water company were in dispute over a few things surrounding these.
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