Missing Planning Permission:Indemnity Insurance May Not Be the Whole Answer

A missing planning permission can look like a paperwork problem with a convenient insurance solution. In reality, the conveyancer must first establish what is missing, whether consent was required, whether enforcement remains a realistic concern and what the buyer’s particular mortgage lender requires.

That distinction matters because planning indemnity insurance covers a defined financial risk. It does not grant planning permission, prove that the work is structurally sound or guarantee that every lender will accept the property.

Missing paperwork is not necessarily missing permission

The first task is diagnosis. A seller’s inability to produce a planning decision notice does not necessarily mean that development was unauthorised. The local authority’s planning register may contain the permission. The works may have benefited from permitted development rights, or no planning application may have been required in the circumstances.

There are several materially different possibilities:

• planning permission was granted but the seller cannot locate the document;
• the works were permitted development and did not require a separate application;
• permission was required but never obtained;
• permission was obtained but the completed works departed from the approved plans;
• a planning condition was not discharged or complied with; or
• the present use of the property does not have the necessary planning status.

Those situations do not carry identical legal, valuation or lending consequences. A policy should not be proposed until the actual problem has been identified.

Planning permission and Building Regulations are different

Planning control is concerned principally with whether development or a change of use is permitted. Building Regulations address matters such as construction standards, structural safety, fire precautions, insulation, drainage and glazing.

A property may have planning permission but no evidence of Building Regulations approval, or the reverse. Planning indemnity insurance does not provide evidence that an extension is structurally sound. Similarly, a Building Regulations completion certificate does not establish that planning permission was obtained.

This distinction is examined separately in our article about a missing Building Regulations certificate discovered during a sale or remortgage.

Why the mortgage lender matters

A conveyancer acting for a buyer with a mortgage will ordinarily also be acting for the lender. The lawyer must therefore consider the buyer’s interests and the lender’s instructions.

Lenders do not necessarily approach missing planning permission in the same way. Depending on the circumstances and the applicable instructions, the lender may expect the conveyancer to exercise professional judgment, obtain an indemnity policy, report the matter for approval or provide information so that the issue can be referred to the valuer.

The LenderMonitor guide to lack of planning permission indemnity insurance illustrates the matters panel conveyancers may need to address, including the required level of cover, the parties protected by the policy and the need to comply with the particular lender’s requirements.

The fact that another lender accepted a similar problem is not determinative. Nor does the availability of insurance remove the need to check the instructions of the lender financing the present transaction.

What does planning indemnity insurance actually cover?

A lack of planning permission indemnity policy will usually respond to specified loss arising from enforcement action. The precise insured risks, exclusions, limit of indemnity and protected parties depend on the policy wording.

It will not normally:

• provide retrospective planning permission;
• confirm that the works comply with approved plans or conditions;
• confirm compliance with Building Regulations;
• repair defective construction;
• remove a planning restriction affecting use or resale;
• prevent the local authority from investigating; or
• guarantee acceptance by a mortgage lender or future buyer.

The policy may nevertheless be an appropriate solution where the identified risk falls within its terms and the lender accepts that approach. The point is that insurance should follow the legal and factual analysis, not replace it.

Do not contact the local authority before taking advice

Many title indemnity policies contain restrictions concerning prior contact with the party capable of taking enforcement action. An owner, buyer or estate agent who approaches the local authority before obtaining advice may prejudice the availability of cover.

That does not mean the local authority should never be contacted. In some cases, obtaining regularisation, retrospective consent or formal confirmation may offer a more satisfactory solution. The decision should be made with the conveyancer after considering the nature of the breach, the lender’s position, the transaction timetable and the policy conditions.

Questions the conveyancer should resolve

Before recommending a policy or reporting to the lender, the file should establish:

1. What work or use is affected? Identify the extension, conversion, alteration or change of use precisely.
2. Was planning permission required? Consider the date, nature and extent of the development and any permitted development rules.
3. What evidence is available? Review the planning register, searches, seller’s papers, approved plans and relevant enquiries.
4. Are any conditions outstanding? Permission may exist while a material condition remains unfulfilled.
5. Is there evidence of enforcement activity? A notice, complaint or prior approach to the authority may materially affect the position and the availability of insurance.
6. What does the valuer say? Insurance does not overcome a concern that alterations affect value, condition or suitability as mortgage security.
7. What does the particular lender require? The lender’s applicable instructions must be checked rather than assumed.
8. Does the policy protect the right parties? Cover may need to extend to the borrower, lender, successors in title and future mortgagees.

The cheapest or fastest solution is not always the best one

Indemnity insurance can often be obtained more quickly and cheaply than retrospective planning consent. That practical advantage explains its frequent use, but speed should not obscure what the policy leaves unresolved.

A buyer may intend to alter the property, apply for new permission or contact the local authority after completion. Those plans may conflict with policy conditions or expose the underlying issue again. The buyer needs to understand not only that a policy exists, but what it covers, what may invalidate it and how the unresolved planning position could affect future use or sale.

The conveyancer should also consider marketability. A solution accepted by the present lender may be viewed differently by another lender or buyer in the future. The immediate mortgage decision is important, but it is not the only relevant consideration.

What if the problem is discovered years after purchase?

Missing planning permission often comes to light when the owner later sells, remortgages or proposes further work. At that point the owner may reasonably ask why the issue was not identified or explained during the original purchase.

The earlier file may show:

• what the local search and planning register disclosed;
• whether the physical alterations were apparent from the survey, valuation or enquiries;
• what explanation the seller provided;
• whether the original lender was notified or an indemnity policy obtained;
• what the lender’s instructions required at the relevant time; and
• what the buyer was told about enforcement, future alterations and resale.

Lender requirements change. The current lender’s approach cannot automatically be projected backwards onto an earlier transaction. Where the historical position matters, the Lexsure Lender Archive page on missing planning permission explains how dated lender requirements can be investigated.

A policy is part of the answer, not the investigation

Missing planning permission should not trigger an automatic insurance response. The conveyancer must first identify whether permission was required, what breach or missing evidence exists, whether the property remains acceptable security and what the lender requires.