A guide to Building Standards Legal Indemnity Insurance
Buildings standards Legal Indemnity Insurance covers the situation where a property has been constructed or converted two or more years ago and should have a NHBC or architecture certificate issued but it does not have the required certification.
In this guide we look at the CLS building standards Legal Indemnity Insurance and answer questions on:
- Who needs building standards Legal Indemnity Insurance?
- Who does buildings standards Legal Indemnity Insurance protect?
- What does building standards Legal Indemnity Insurance cover?
- Taking out building standards Legal Indemnity Insurance
Who needs building standards Legal Indemnity Insurance?
A purchaser may need building standards Legal Indemnity Insurance if:
- They are buying a property that should have a valid NHBC or an architects certificate and
- The property does not have the certification and
- They are buying with the assistance of a mortgage
That is because most UK lenders will only lend on an uncertificated property if specialist building standards Legal Indemnity Insurance is taken out or where the necessary certification is produced.
The building standards policy does not cover other property paperwork issues, such as:
- Lack of planning permission
- Absence of buildings regulation certification
- Lack of renovation certification, such as FENSA paperwork or other required warranties
If a property is missing other essential certificates, then additional Legal Indemnity Insurance policies can be taken out, such as:
- Planning and building regulation approval insurance – for more information on this policy take a look at A guide to planning and building regulation approval insurance
- Absence of easement insurance – for additional information, here is our guide to the absence of easement policy
Who does building standards Legal Indemnity Insurance protect?
A building standards policy protects the lender, not the purchaser. The policy is therefore only suitable if a buyer is purchasing with a mortgage. Cash buyers are not covered.
What does building standard Legal Indemnity Insurance cover?
As buildings standards Legal Indemnity Insurance is designed to protect the mortgage lender, the maximum sum insured under the policy is the amount secured against the property at the time of the claim. This is referred to as the shortfall and specifically covers:
- The amount of the outstanding mortgage (comprising capital and interest but not penalty interest)
- Any other costs and expenses incurred with the insurer’s written consent
The policy will pay out if the value of the property on sale is less than the shortfall as set out above as a direct consequence of the lack of documentation.
The policy provides cover for the length of the original mortgage term.
The policy does not cover:
- This policy is not a replacement for structural indemnity or a replacement of appropriate guarantee or certification.
- Loss which would not be recoverable under the terms of a valid Architects Completion Certificate or NHBC or similar certificate issued on practical completion of the construction or conversion of the property
- Loss arising out of any structural defects that were disclosed in a structural survey report, Homebuyer’s Report or mortgage valuation report carried out on the property prior to the start of the policy
- Loss arising directly from any alteration, addition, or extension to the property carried out after it was constructed or converted
Taking out building standard Legal Indemnity Insurance
With building standards Legal Indemnity Insurance there are two points to note:
- The policy covers the transaction and it is therefore not valid cover for a future transaction, such as a remortgage. A new policy would need to be taken out
- The policy is not suitable for new-build property as there is a bespoke product tailored to new-build properties, namely the search insurance (New Build/Works Carried out in Last Twelve Months) Legal Indemnity Insurance policy
The CLS building standards Legal Indemnity Insurance cover is flexible and available where the Statements of Fact are broadly:
- The insured property is a single house or flat in England or Wales.
- A certificate of Practical Completion confirms the property was completed at least two years ago.
- The seller has owned the property and it has been occupied for at least two years.
- The seller is not a relative or business associate of the builder who constructed the property.
- The property was not built under a self-build scheme.
- The seller has confirmed that no alterations, additions or extensions have been made to the property since construction.
- The seller purchased the property at an open market value.
- The buyer has obtained a structural survey or Home Buyer's Survey, which confirms that there are no structural defects at the property and neither the seller nor buyer is aware of any structural or maintenance defects in the last two years.
- On the date the policy is ordered neither the seller nor the buyer is aware of any matter which is likely to give rise to a claim, other than any matter already disclosed, such as the lack of NHBC certification.
Taking out a building standards Legal Indemnity Insurance policy is simple and online cover is available in minutes.
CLS here to help
CLS has over 15 years of experience in helping conveyancers with both residential and commercial property transactions. Our online portal is free to register and you’ll find our range of over 60 Legal Indemnity Insurance policies and products at your fingertips - including Variable Statements of Fact to let you customise to your client’s needs for the full range of legal indemnity policies including search legal indemnity insurance policies. Online indemnity insurance protection can be available within a matter of minutes. If a bespoke quote is required or you would simply rather speak to someone about policy options, we also have a team of specialists who can help you out with a bespoke offline policy.