A series of case studies on Legal Indemnity Insurance policies providing examples of how, with the right insurance policy, a property owner can achieve protection and conveyancing solicitors can manage risk, CLS provides planning and building regulation legal indemnity insurance.
In this article, we look at a case study example of where CLS provided Planning and Building Regulation Legal Indemnity Insurance.
CLS Property Insight appreciates the public are now more aware of the importance of planning consents and ensuring any relevant home improvements are signed off with appropriate building regulation consent. However, it is often only when a purchaser is nearing exchange of contracts that their conveyancing solicitor discovers some discrepancy with either planning compliance or building regulation consent. By that stage, the purchaser has spent money on a survey and is normally loathe to pull out of their purchase for what they perceive to be a bit of a formality.
The classic example of lack of planning and building regulation approval is the scenario where a property is marketed as a three-bed house by the estate agent who was assured by the seller that all the paperwork is in order. However, with a bit of digging and by asking the right questions, a conveyancer will soon discover that the property being sold is a two bed with a third room that can’t be described as a bedroom as the sellers didn’t get the necessary consents.
If the buyer doesn’t want to throw away their survey costs or if the buyer is dubious that they’ll find a better property they may want to go ahead with their purchase, normally with the benefit of specialist Planning and Building Regulation Legal Indemnity Insurance.
Planning and Building Regulation Legal Indemnity Insurance
CLS Planning and Building Regulation Legal Indemnity Insurance policies can cover all manner of works carried out to a property in the past that do not have the appropriate documentation. For example, the DIY loft or garage conversion, the addition of a porch or electrical or plumbing work, all without the necessary paperwork.
The purpose of these policies is to protect purchasers (and of course mortgage companies lending on homes) from enforcement action from the local authority who can, in some cases, force unauthorised works to be rectified or in a worst-case scenario can require all or part of a building to be demolished. Such enforcement action could potentially result in the purchaser spending a large amount on remedial repairs as well as devaluing the property.
Many purchasers assume that this type of insurance policy covers any shoddy work that isn’t up to standard at the property, or will cover replacement of simply old and defective boilers, glazing systems, or electrical installations etc. However, if for example, a Planning and Building Regulation Legal Indemnity Insurance policy is taken out because a boiler simply needs replacing, or because it doesn’t have the necessary buildings regulation certificate the insurance policy doesn’t cover the cost of repairs to the boiler or the installation of a new boiler but purely action required because of enforcement proceedings by the local authority. If the buyer has to incur expense in relocating the boiler to a place in the home that is regulation compliant or has pay for the installation of a new boiler solely because of enforcement action (and not just due to the age and condition of the boiler) then that would be covered under the policy, provided the insurer is satisfied that the local authority enforcement action is valid.
It is important that purchasers protecting themselves with a Planning and Building Regulation Legal Indemnity Insurance policy understand that they must not discuss the insured work (whether it is a boiler or loft installation or other undocumented work to the property) with any relevant authority without first obtaining the consent of the insurer. Contact with a relevant authority without first securing the insurer’s consent risks the invalidation of the policy.
The planning problem
The usefulness of a Planning and Building Regulation Legal Indemnity Insurance policy is demonstrated in our case study. The prospective purchaser of a top floor flat in a fashionable part of London was delighted to find a property marketed with a roof terrace. It transpired that planning permission had never been sought by the previous owners who had placed railings on the roof to create a roof garden. The purchaser wisely took out a policy on his conveyancing solicitor’s advice to guard against local authority enforcement action.
- Action – The local authority’s planning department wrote to the flat owner instructing him to remove the railings from the roof and to cease using the roof as a terrace or garden. The local authority said failure to comply would result in legal proceedings. The insured sent the letter to CLS but when doing so made it clear that he was very keen to keep the roof terrace rather than accept an insurance pay out from CLS for the diminution in value of the flat between a property with a roof terrace and one without outdoor space.
- Assessment – CLS’s claims handlers, after taking expert legal advice from panel solicitors, were left with two courses of action, to either compensate the insured for the diminution in value of the flat, which was assumed to be relatively little at the time of the claim, or appeal against the local authority decision. The insured pushed for the policy to cover the cost of an appeal against the local authority enforcement action as the insured understandably wanted to keep the roof terrace as it added appeal to the flat and the insured was confident of appeal success as he had seen many other similar roof terraces in the area.
- The outcome – CLS were content to fund the appeal but regrettably the appeal against the requirement to remove the roof railings failed. It was held that the railings had to be taken away and a Juliet balcony could be installed. The policy picked up the appeal costs as well the cost of removing the railing, the balcony installation and legal fees. An arrangement with the insured was reached on the diminution in property value.
- The take out – Dealing with a local authority can be both stressful and time consuming. As the insured had the benefit of Legal Indemnity Insurance, resulting in the instruction of expert panel solicitors, the stress on the insured was significantly reduced. Furthermore, the panel solicitors were content to endorse the insured’s preferred route of appeal against the local authority enforcement action. Although the appeal failed, the panel solicitors were able to achieve permission for the erection of the Juliet balcony which suited the interests of both the insured and CLS. The insured got his balcony, as the next best option to a roof terrace, and by securing permission and paying for the balcony, the insured’s diminution in value claim was reduced in value and compromised on by the insured and CLS.
To avoid a purchaser withdrawing from their planned purchase, or always looking over their shoulder and fearing that the post will bring a letter from the enforcement team at the local authority, specialist Planning and Building Regulation Legal Indemnity Insurance can enable a property transaction to proceed. This type of indemnity insurance can manage the risk to a purchaser and significantly reduce the stress of dealing with local authority enforcement action through the insured having recourse to expert panel solicitor legal advice and support.
PALI is here to help
PALI can provide you with CLS services. CLS Property Insight who are behind the policies, are the leading legal indemnity providers for professionals. Their innovative online system which aids due diligence and manages risk has been fully integrated into the PALI Platform ensuring a seamless transaction for clients. The user experience for PALI clients has been further improved for the ordering of indemnity policies, clients now have the added benefit of being able to back date policies when ordering at www.paliltd.com.
If you would like more information on any of the topics raised above, please contact a friendly member of the Pali team on 0800 023 5030 / search@paliltd.com
