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Building Regulation Indemnity Policies - what are they for and are they worth it?
A common situation for the conveyancer is dealing with a property where a wall has been removed to create an open-plan lounge/diner, or an extension has been built without proper building regulation documentation present. In such cases, a Building Regulation indemnity policy has frequently been suggested as the solution to the problem.
What do they cover?
A Building Regulation Indemnity policy covers the cost of complying with any enforcement action taken by the Local Authority in relation to the work. This might include the cost of altering, demolishing or reinstating any part of the property to comply with the enforcement action and any decrease in property value following such action.
However, the policy cannot be claimed upon by the property owner if they themselves discover any defects in the work in question. If, for instance, it is found that the wrong kind of RSJ has been installed and the property is at risk of collapse, then the policy is of no use at all; it only comes into play in the event of enforcement action by the Local Authority.
How likely is enforcement action?
The answer is usually not very, and certainly not for works over a year old. For works completed before 1st October 2023, the action which the Local Authority can take is as follows:
- They can serve an enforcement notice within 12 months of completing the building work in breach. The property owner then has 28 days to comply with that notice. If the owner fails to comply, the Local Authority can carry out the works required by the notice at the owner's cost.
- They can seek a court order under Section 36 (6) of the Building Act 1984. No timescale exists for when that action must be taken, so this remains an option for works over 12 months old. However, Local Authorities have rarely used this avenue of enforcement for domestic properties because it is time-consuming and costly and whether the order will be granted is at the court's discretion. Most local authorities, in fact, have a policy of only taking action under Section 36 (6) for works that threaten public health and safety.
There are also some criminal proceedings and fines which may be brought against the person responsible, which we shall not go into here, and they would not need to concern a buyer.
What about works completed after the 1st of October 2023?
The cost of policies could change following a change in the enforcement regime brought in by the Building Safety Act 2022 for works completed after the 1st of October 2023.
Amongst other things, this now gives the Building Control authority ten years from completion of works to serve an enforcement notice if works breach the regulations.
Building Regulation Indemnity policies are currently very cheap- only £12 for the average property. This reflects that the chance of a policy claim is very unlikely.
Currently, indemnity insurers will provide coverage for works over six months old. As such, the potential impact of the new enforcement regime on the availability or cost of Building Regulation Indemnity policies remains to be seen and will not be apparent until at least April for any work that has been completed since the 1st of October 2023.
Is it worth taking out a policy?
Mortgage lenders and conveyancers have often been comforted if an indemnity policy will be provided in the absence of evidence of a Building Regulation Completion Certificate for works. The policy covers the potential for enforcement action (even if it is remote), giving peace of mind that enforcement action need not be a concern.
For buyers, though, particularly for works over 12 months old where enforcement action is unlikely, the policies are of little value. It is far more important to have the works checked by a surveyor or structural engineer to ensure that they have been properly done. If the work is sound, then there should be no potential for enforcement action for breach.
The new 10-year period for an enforcement notice to be served does change things, and these indemnity policies will be essential for works completed after the 1st of October, 2023. We may see their cost rise significantly as a result.