Why would indemnity policy for covenants, rights and easements be needed?

NervyBuyer

Purchase of a terraced house built in 1870. Title register contains a statement in the Charges Register that a conveyance dated 1870 contains restrictive covenants but no further information is available (that's the only entry in the Charges Register).

Solicitor has asked vendor's solicitor for an indemnity policy covering this and rights and easements as they are not mentioned at all on the title register. Vendor's solicitor is saying they will only provide one for restrictive covenants.

2 questions:
1. What sort of covenant might exist and how would insurance protect me? I only want to live there as a residential building, with a possible small extension to fill in a courtyard at the back as many other similar houses have done.
2. Same thing for rights and easements. There is no rear access to the terrace - what sort of rights could exist and where would they be documented if not on the title register?

Thanks!

MyRealNameToo

1) there are wide range of covenants that could exist, depending on the nature of the property some may be more likely than others. In theory they can restrict the look of the property, stop any money generation (eg no working from home), prevent ownership of cats and dogs, require payment to the covenant holder for any extension to be added etc 

The insurance would cover the change in value of the property should it later be discovered that there is a covenant that detrimentally impacts the value of the property

2) Similar to the above, most common problem ones are people have right of way across your property

NervyBuyer

Thanks. If there are such covenants I want to know about them, not be insured against costs.

There is no physical access for a right of way - the property is on the pavement at the front, there is a wall along the back boundary (built at the same time as the property, there is a date inscribed), and side access at the ends of the terrace is blocked by houses on the cross-streets.

Am I being naive in thinking that for a property over 150 years old these things are unlikely to be a problem in practise?

Section62

NervyBuyer said:

...
2. Same thing for rights and easements. There is no rear access to the terrace - what sort of rights could exist and where would they be documented if not on the title register?
...

Rights of way can still exist even if there is no physical way to use it - for example if a house or wall has been built across it.

If the beneficiary of the right of way decides they want to start using it then - at least in theory - they could demand the wall/house etc is demolished to allow the right of way to be used again. Although the owner of the wall/house etc might be able to challenge the right.

The risk is someone with a right turns up with documentary evidence - for example because their deeds retained a copy of an agreement which was lost in the case of the property you are interested in.

user1977

NervyBuyer said:

If there are such covenants I want to know about them, not be insured against costs.

But you can't know about them, because nobody else knows what they might be. Which is why you're being offered insurance against the minuscule risk that they cause you a problem.

NervyBuyer

user1977 said:

NervyBuyer said:

If there are such covenants I want to know about them, not be insured against costs.

But you can't know about them, because nobody else knows what they might be. Which is why you're being offered insurance against the minuscule risk that they cause you a problem.

Someone must know otherwise how could they act on them?

I'm still not really sure what the insurance actually offers. If someone comes up with a right of way document and the house has to be demolished to accommodate it, the insurances pays the value of the house? (Extreme example I know).

Overall the risk from both covenants and rights/easements seems pretty low, and the insurance is not that expensive, but I'm not convinced it's not a complete waste of money.

user1977

NervyBuyer said:

user1977 said:

NervyBuyer said:

If there are such covenants I want to know about them, not be insured against costs.

But you can't know about them, because nobody else knows what they might be. Which is why you're being offered insurance against the minuscule risk that they cause you a problem.

Someone must know otherwise how could they act on them?

Nobody involved in your transaction knows about them. The risk is that somebody else turns up waving a long-lost deed which gives them some sort of rights.

Yes, the insurance will typically provide cover up to the price you are paying for the property. In practice, even if there were a claim, it's up to the insurers how they settle it and the chances are that the third party can be paid off rather than actually wanting to demolish your house.

Why are you worried about the cost of the insurance? Isn't your seller paying for it? Presumably it's peanuts anyway?

NervyBuyer

I'm not particularly worried about the cost of it (see OP - vendors won't pay for the policy my solicitor wants so I will have to pay for it all if I want it), that's a side issue. I'm more interested in why there might be a need for it (which sounds a pretty low risk under the circumstances) and whether there's a risk of it being a waste of money because it's the kind of thing that turns out you can't actually claim on it in practise.

user1977

Why do you think you wouldn't be able to claim on it? It's a perfectly legitimate and commonplace type of insurance. Yes, the chances of a claim are very small (hence the modest one-off premium) but if there were a claim it could be pricy.

Also, are you buying with a mortgage? If so your solicitor will presumably advise your lender that there should be insurance, so you won't have much choice in the matter.

molerat

That is your gamble to take.  Pay peanuts and hope the policy pays out if necessary or ignore it and hope nobody turns up with something that will cost you £KKK which you are not insured against.  All insurances are pretty much the same, the amount we have all wasted over the years.

MyRealNameToo

NervyBuyer said:

I'm not particularly worried about the cost of it (see OP - vendors won't pay for the policy my solicitor wants so I will have to pay for it all if I want it), that's a side issue. I'm more interested in why there might be a need for it (which sounds a pretty low risk under the circumstances) and whether there's a risk of it being a waste of money because it's the kind of thing that turns out you can't actually claim on it in practise.

Are you reliant on a mortgage? If so your lender may not have the same risk appetite as you and they may demand that someone buys the insurance. Remember your solicitor acts for both you and your lender, if they advised you to buy it they've likely advised your mortgage provider too that it would be prudent. 

Most indemnity policies are never claimed on which is why the cost is so low compared to the value of the risk they are taking. Claims however do happen, saw a case study of someone buying a remote house whose water came from the private supply of a country estate on which it had been built but there was nothing in the deeds about them being able to draw water from the estate. Water cut off as the estate was doing some work and discovered the plumbing. 

The insurer looked at getting a solution in place, the estate didnt want to supply the water, the mains was half a kilometre away and crossing several peoples property so would have been long and complicated to use and so ultimately the insurer paid circa £37,000 to have a new private borehole and filtration system installed. 

Policy had cost £250 and had a £800,000 limit