Restrictive Covenant Indemnity Insurance basics
- Flickr: Moore House
When a property is first developed, the builder must obtain permission from the land owner to carry out work, or own the land themselves. In many cases the original deeds to the land might not be found in searches. Rather than abandon their building work completely, a developer will choose to build on the land anyway.
Unfortunately, the original deeds may place a restrictive covenant on the land, which prohibits building on the land. If the developer used the land without looking at or obtaining these deeds they have no way of knowing if a restrictive covenant was put in place, which could be over 100 years ago in some cases. However, should the restrictive covenant be enforced, the current owner of the property will be responsible for the breach of covenant, whether or not they took out the work themselves. That's where restrictive covenant indemnity insurance comes in.
You can't normally take out restrictive covenant indemnity insurance if an enforcement for breach of covenant has already been issued. Normally, indemnity insurance of this form is taken out if a new buyer suddenly becomes aware that a restrictive covenant was in place on the land, or the original developer takes out indemnity insurance as a "financial safety net" in case a restrictive covenant was put into place. In any case, restrictive covenant indemnity insurance is a one off payment which lasts for the lifetime of the property, transferred from property owner over its time.
However, restrictive covenant indemnity insurance will not protect a property from enforcement. It only protects the financial aspect of the home, such as loss of value to the home, legal expanses to fight the restrictive covenant or any other kind of financial loss. If part of the property is deemed in breach of a covenant and must be removed, for example, you will have to comply with this order; restrictive covenant indemnity insurance only protects the financial part of this removal.