Can an Indemnity Policy Resolve Unauthorised Works to a Listed Building?

A seller is unable to produce evidence of Building Regulations approval or listed building consent for alterations to a property. An indemnity policy was obtained during an earlier transaction, and the seller has now agreed to increase its level of cover.

Will that allow the sale to proceed?

It may help with one identified financial risk, but it does not answer every question about the works. This is especially important where the property is listed. Building Regulations approval, listed building consent, the physical condition of the work and the terms of an indemnity policy are separate issues.

The Report on Title needs to explain more than the policy

The scenario is addressed in the Lexsure Knowledge Hub precedent headed Unauthorised Works: Lack of Building Regulations and Listed Building Consent, Seller Agreed to Uplift Existing Policy.

The rationale for the precedent is to explain the implications of unauthorised works where evidence of Building Regulations compliance and listed building consent cannot be produced.

That explanation is important because a buyer should not be left with the impression that increasing the indemnity limit validates the alterations. It does not.

What does increasing an existing policy achieve?

An existing indemnity policy may have been issued when the current owner bought the property. Its indemnity limit may have reflected the value of the property or mortgage at that time.

If the property is now worth substantially more, the existing cover may be considered inadequate. The seller may therefore agree to increase the indemnity limit or obtain a replacement policy for the proposed buyer and mortgage lender.

Subject to its wording, the policy may cover specified financial losses arising from enforcement action. It may also extend protection to successors in title and mortgage lenders.

However, the policy does not necessarily:

• provide Building Regulations approval;
• provide listed building consent;
• confirm that the work is structurally sound;
• establish that the alteration is safe;
• confirm that the work preserves the historic character of the building;
• pay for ordinary repairs or defective construction;
• prevent the planning authority from taking action; or
• guarantee that every mortgage lender will accept the property.

The policy wording, insured risks, exclusions, conditions and indemnity limit must therefore be considered carefully. The word “indemnity” should not be treated as meaning that the underlying problem has been corrected.

Building Regulations and listed building consent are different

Building Regulations govern how work is carried out. Depending on the nature and date of the work, they may address matters such as structure, fire safety, ventilation, drainage, insulation, glazing and electrical safety.

Listed building consent protects the special architectural or historic interest of a listed building. It may be required where alterations, extensions or demolition affect the building’s character.

A project may therefore:

• have Building Regulations approval but lack listed building consent;
• have listed building consent but lack Building Regulations approval;
• lack evidence of both approvals; or
• have approvals that do not correspond with the work actually completed.

The buyer’s conveyancer must establish what is genuinely missing rather than treating the matter as one general paperwork problem.

Why listed building consent changes the risk

Unauthorised work to a listed building requires particular care. Historic England explains that carrying out unauthorised works affecting the character of a listed building is a criminal offence. A planning authority may also require unauthorised alterations to be reversed.

Unlike some ordinary planning breaches, there is no general time limit after which unauthorised listed building works automatically become immune from listed building enforcement merely because they are old.

It is possible to apply for listed building consent after works have been carried out. However, consent granted later operates from the date it is given. It does not retrospectively make the earlier unauthorised work lawful or remove any criminal liability that may already have arisen.

This does not mean that every missing listed building consent will result in prosecution or enforcement. It does mean that the age of the work should not be treated as a complete answer.

Should the council be contacted?

Contacting the local authority may help establish whether consent exists, whether the work required consent or whether an application could now be made.

However, contact with the authority may affect the availability or validity of indemnity insurance. Many policies contain conditions restricting disclosure of the problem or contact with the body capable of taking enforcement action.

The buyer or seller should therefore take advice before approaching the planning or building control authority. Where contact has already taken place, the conveyancer and insurer should be told exactly what was said and what information was provided.

This creates a genuine choice rather than an automatic solution. Pursuing retrospective consent may address the underlying regulatory position, but could involve investigation, remedial work and the risk that consent is refused. Insurance may protect against specified financial consequences, but it does not approve the works.

What about the physical condition of the alteration?

An indemnity policy and the passage of time do not establish that the works are safe.

If walls were removed, openings created, roofs altered or floors changed, a surveyor or structural engineer may need to investigate the construction. In a listed building, the investigation may also require advice from a surveyor or architect experienced in historic buildings.

Even a specialist report has limitations. Concealed foundations, beams, supports or fire precautions may not be visible without opening up the building. The scope of the inspection and any exclusions should be understood before the buyer relies upon it.

A professional report can provide evidence about condition. It cannot itself supply Building Regulations approval or listed building consent.

Will the buyer’s mortgage lender accept the policy?

The buyer’s conveyancer may also need to consider the mortgage lender’s instructions. The fact that an indemnity policy exists does not establish that the proposed lender will accept it.

A lender may require:

• an indemnity policy in an approved form;
• a minimum indemnity limit;
• cover for the lender, borrower and successors in title;
• a referral to the lender or its valuer;
• confirmation that no approach has been made to the local authority;
• further evidence about the age and nature of the works;
• a survey or structural report; or
• individual approval before an unqualified certificate of title can be given.

The relevant requirements may also have changed since the seller bought the property.

The Lexsure Lender Archive page on missing Building Regulations can be used to investigate what a particular mortgage lender’s recorded requirements said on the original completion date.

Where listed building consent or another planning consent is also missing, the historical lender requirements concerning missing planning permission may provide an additional line of investigation.

Why the original purchase matters

A seller may reasonably ask why the same unauthorised works did not prevent their own purchase. They may remember being told that an indemnity policy had resolved the problem.

The answer may be contained in the original conveyancing file. Relevant documents may include:

• the seller’s property information form;
• the local authority search;
• the listed building entry;
• planning and building control records;
• the original enquiries and replies;
• the survey and mortgage valuation;
• the existing indemnity policy;
• correspondence with the mortgage lender;
• the lender’s instructions then in force; and
• the original Report on Title.

The file may show that the missing consents were identified, an appropriate policy was arranged and the risks were adequately explained. Alternatively, it may show that the policy was mentioned without explaining that it did not confirm the safety, quality or acceptability of the work.

Our article Missing Building Regulations Paperwork: Why Wasn’t This a Problem When I Bought? explains why a problem arising during a later sale may justify examining the original transaction.

For the practical differences between recovering a certificate, indemnity insurance, regularisation and obtaining a professional report, see Missing Building Regulations Certificate? Selling and Buying.

What should the seller do now?

The seller should begin by identifying the precise works and the exact documents that cannot be produced. It should not be assumed that approval was never obtained merely because a certificate is missing.

The next steps may include:

• checking the papers from the original purchase;
• searching for existing planning and building control references;
• obtaining a copy of the existing indemnity policy;
• checking its insured parties, conditions and indemnity limit;
• confirming whether the property was listed when the work was undertaken;
• establishing whether the work affected its special character;
• obtaining appropriately qualified surveying advice;
• checking what the proposed buyer’s lender requires; and
• taking advice before contacting the local authority.

Agreeing to increase an indemnity policy may be part of the solution. It should not be presented as though it resolves every aspect of the unauthorised works.

This article provides general information only. It is not legal, planning, heritage, surveying, mortgage or insurance advice. The consents required, enforcement position and effect of any indemnity policy depend upon the particular property, works, documents and policy wording.