What Is Restrictive Covenant Indemnity Insurance — And Do You Need It?

When buying or selling a property, legal issues can catch you off guard — and one of the most common is the restrictive covenant. These are clauses in your property title or leasehold agreement that limit how the land can be used. If a covenant has already been breached or could be breached in the future, you may come across something called Restrictive Covenant Indemnity Insurance.

Here’s a clear, jargon-free guide to what it is, how it works, and when it might help.

What Is a Restrictive Covenant?

A restrictive covenant is a rule written into your title deeds that prevents certain uses or developments on the land. It often stays with the land even if ownership changes. Some common examples include:

• No extensions or other outbuildings
• No commercial or business use
• No splitting the land into separate dwellings
• Restrictions that require planning permission to override
• Specific conditions on the appearance or use of the property

Some covenants date back decades and may refer to now-unknown or even extinct parties. They still carry potential risks, especially during a sale or planning process.

Why Can Restrictive Covenants Be a Problem?

If a covenant has been breached — or might be breached due to planned work — someone with the benefit of the covenant could take legal action to enforce it. That might include seeking removal of a structure, blocking planning permission, or demanding compensation.

Even if a claim is unlikely, the uncertainty can delay sales or put off mortgage lenders, who want reassurance that no claims will arise. This is where a suitable insurance policy provides practical and financial protection.

What Is Restrictive Covenant Indemnity Insurance?

It’s a specific type of insurance policy that protects against the financial consequences of someone enforcing a restrictive covenant. It usually applies when:

• A covenant has already been breached (perhaps by a previous owner)
• A buyer or lender requests cover as part of the sale
• A covenant is unclear or refers to unknown covenants
• You’re planning future work that might conflict with a covenant

This kind of cover also applies to leasehold properties — in which case it may be referred to as a leasehold covenant indemnity policy.

What Does the Insurance Cover?

A restrictive covenant insurance policy typically includes:

• Legal costs if enforcement is attempted
• Compensation or settlement costs
• Reduction in market value if changes must be reversed
• Costs of restoring the property to comply with the covenant
• Protection for future buyers of the insured property

It’s important to note that the insurance only protects against potential risks, not known or deliberate breaches.

How Much Does It Cost?

The actual cost of the policy will depend on several factors — including the property value, location, and perceived risk. For standard residential cover, prices often range from £100 to £300.

You’ll usually only pay a one-off premium, and your solicitor can often secure a quote quickly through an insurance provider or independent broker.

When Might You Need This Insurance?

You might be advised to take out a policy if:

• The conveyancing solicitor discovers a restrictive covenant during title review
• The planning process reveals a covenant that could prevent development
• A mortgage lender requires cover before releasing funds
• You don’t want to delay a sale due to legal uncertainty
• You’re unable to contact the party who benefits from the covenant

Having the policy in place can give buyers, lenders, and sellers peace of mind.

When Is Indemnity Insurance Not Suitable?

You may not be eligible for insurance if:

• You’ve already contacted the person or group who benefits from the covenant
• You are knowingly planning to breach the covenant in future
• Enforcement action is already underway
• The covenant is active and regularly enforced (for example, by a management company)

Always check with your legal adviser before proceeding. Contacting the wrong party too soon can invalidate cover and limit your options.

Real-Life Scenarios: How It’s Used in Practice

Example 1 – Historic Breach Discovered During Sale
A seller discovers that a garden room was built 10 years ago without checking the title. A covenant restricts alterations without consent. Rather than delay the sale, the solicitor arranges indemnity cover — and the buyer’s lender is satisfied.

Example 2 – Developer Buying Agricultural Land
A developer purchases land in South Wales to convert into housing. The property deeds contain a covenant restricting use of the land for anything other than farming. A restrictive covenant insurance policy is taken out ahead of submitting the planning application.

Example 3 – Leasehold Flat in Cardiff
A leaseholder plans to change the layout of their flat. The lease contains clauses limiting alterations. The solicitor arranges a leasehold covenant indemnity policy to satisfy the lender, allowing the remortgage to proceed.

FAQs: Quick Answers to Common Questions

Is indemnity insurance legally required?
No, but it’s often required by buyers or lenders as part of the transaction.

Will it delay my purchase or sale?
Not usually. Most policies are arranged within 24–48 hours once approved.

Can I remove the covenant instead?
Possibly, through a legal application — but it’s costly and takes time. Insurance is faster and simpler.

Can the policy be transferred to new buyers?
Yes, most policies cover the continued use of the property and transfer to future owners.

Does it protect me if I breach the covenant in future?
No. The policy is for historic or unintentional breaches only. It won’t cover deliberate future actions.

Step-by-Step: How to Arrange Restrictive Covenant Indemnity Insurance

1. Your conveyancing solicitor reviews your title deeds and flags a restrictive covenant.
2. They assess the legal risks and discuss whether insurance is appropriate.
3. A quote is requested from an insurance provider or independent broker.
4. If acceptable, a one-off premium is paid to activate the policy.
5. The insurance is added to the transaction file and covers the insured property going forward.

Final Advice

If you’re buying, selling, or developing property and come across a restrictive covenant, restrictive covenant indemnity insurance may be a simple and cost-effective way to manage the potential risks. It gives buyers and lenders the confidence to move forward and protects you from costly legal surprises.

Ask your solicitor for further information specific to your situation. They’ll guide you through the right approach based on your property, plans, and the nature of the covenant involved. Firms like Graham Evans & Partners, based in Swansea, regularly assist clients with indemnity insurance during the conveyancing process.