A Guide to lack of planning and/or building regulations legal indemnity insurance

Conveyancers question how a vendor did not know they had a problem with their property paperwork until enquiries before contract were raised. In an ideal world a vendor would sort out the correct documents before putting their property on the market for sale but one thing is for certain; property solicitors do not work in an ideal world.

Purchasers can be exasperated that planning or building regulation approval is missing but there can be many reasons why a vendor did not get the right paperwork, such as the seller:

Thought planning permission was unnecessary as the extension came under permitted development rules.
Assumed approval was not needed to tarmac their driveway.
Was not originally planning to sell so did not think it was worth getting building regulation approval.
Was assured by a tradesperson that planning or building regulation approval was not needed and the vendor did not check.
Did not realise that as the property is located in a conservation area planning permission was needed for an extension as permitted development rules do not apply.

Whatever the reason for the lack of planning or building regulation approval the situation needs to be carefully managed to avoid the property chain from collapsing. Conveyancers know in most scenarios there are completion time pressures, such as relocation to start a new job or a mortgage offer expiry date.

Why is planning permission and building regulation important in the conveyancing process?

If a property does not have required planning permission or building regulation approval the local authority can take enforcement action.

If a purchaser has bought a property, or a mortgagor has lent funds based on the value of an extended property, demolition of part will affect the value and lead to considerable expense. Invariably the buyer, and potentially the mortgagor, will look at who to blame for the property transaction proceeding without the necessary consents. The conveyancing solicitor is normally first in line because of their insurance cover and if the vendor is difficult to trace, uninsured or impecunious.

Planning permission and building regulation approval is therefore important for the buyer, mortgagor and the professionals involved in the property transaction. It is best to check that the work carried out required permission or fell within permitted development rights. The Planning Portal is a good place to start to see if planning permission or building regulation approval was required for the works.

Planning permission – the basics

Planning permission controls the use of property, its appearance, landscape and highway access. It is the responsibility of the owner to check if they need planning permission for their planned works and, if so, to adhere to all planning conditions.

Some works may not require planning permission although the same work may need building regulation approval. It is easy for a property owner to get planning wrong. For example, if a property is in a conservation area or national park then permitted development rules do not apply. For example, the rules may not apply if a property is being converted to a house in multiple occupation and a local authority has issued an article 4 Direction to restrict certain uses that would otherwise fall under permitted development rights.

If a homeowner is unsure whether intended works require planning permission, they can apply for a lawful development certificate. This informs the owner if a full planning application is required or whether the changes fall within permitted development rights. A lawful development certificate is as effective as planning permission when it comes to providing the correct paperwork on a sale of property.

If planning permission was not sought then the property owner can submit a retrospective planning application but the homeowner runs the risk of enforcement and losing their purchaser because of the time it will take to secure retrospective planning.

Building regulations – the basics

Building regulations control the methods and materials used in the construction or works to a property. These safety standards cover areas such as the foundations, fire protection, damp proofing and structural issues.

Building control surveyors will visit the property and when the works are complete a final check will be made to see if the works have been carried out in accordance with the standards. If so, a completion certificate will be granted. If the works do not meet building regulations, a completion certificate will not be granted. Conveyancers are on the alert when they see a building regulations entry on a local authority search showing that there are works that lack the final sign off.

Work can also be carried out to a property under a Competent Person Scheme where approved companies can self-certify their work as building regulation compliant. For example; window installation, replacement boiler or electrical work. The property owner is provided with certification by the installer and that is as good as a completion certificate.

If work has been carried out to a property without building regulations approval a property owner can apply for a regularisation certificate for retrospective consent. From a seller’s perspective, if they seek retrospective consent, they risk building control saying the work is not up to standard, the refusal of a completion certificate, additional costs and significant delay which could mean they lose their buyer.

Local authority enforcement action where there is a lack of planning permission or building regulation approval

Whether it is lack of planning or building regulation approval a property owner without the right paperwork can live under the fear that the local authority will discover the works to the property and take enforcement action.

In situations where planning permission was not obtained a local authority can take enforcement action from four to ten years after the work was carried out or changes to use occurred. Section 171 of the Town and Country Planning Act 1990 sets out time limitations on enforcement for lack of or breach of planning permission. However, where a property is listed or work to a property has been concealed to avoid detection there are no time limits.

Where building regulation approval or sign off to works was not sought and the works contravene building regulations a local authority can issue an enforcement notice under section 36 of the Building Act 1984 but breaches can only be enforced within twelve months of the works. However, the local authority can apply for a Court injunction order to require the alteration or removal of works that do not comply with the regulations and there is no time limit for a Court application. Enforcement will set out what needs to be altered or removed within a certain time frame and will cost money, have an adverse impact on the property value and will cause inconvenience and disruption to the property owner.

The fact that the unauthorised work to a property was carried out in ignorance of planning laws and building regulations or was commissioned by a former owner is irrelevant when it comes to local authority enforcement.

Conveyancing risk management and the salutary tale of Cottingham v Attey Bower & Jones

Cottingham v Attey Bower & Jones LTL 31/3/2000 (2000) PNLR 557 is a cautionary tale for conveyancers. The proceedings involved a claim for professional negligence against the conveyancing solicitor, rather than the property surveyor, or a fraud claim against the vendor.

Mr and Mrs Cottingham bought a house where the vendor had undertaken renovations eight years earlier. Structural problems, overlooked by their surveyor and linked to the building works, were discovered. Post purchase enquiries revealed the vendor had not got building regulation approval and had not been honest when answering pre-contract enquiries.

Mr and Mrs Cottingham sought over £40,000 in damages for rectification works. The Court found the property solicitor should have discovered the renovations did not have building regulation consent even though the solicitors had made enquiries recommended by the Law Society 1993 Conveyancing Handbook in asking whether building regulation consent had been obtained for work undertaken within the past twelve months. The Court held that there was no justification for limiting the enquiry to work carried out in the preceding twelve months because of the statutory power for the local authority to apply for an injunction.

The Court concluded there was negligence as the conveyancer should have made further enquiries of the local authority. Had Legal Indemnity Insurance been taken out the conveyancer would not have been obliged to undertake detailed enquiries. A Legal Indemnity Insurance quote can be generated in under sixty seconds, with Variable Statements of Fact reducing the need to make offline quote requests.

Case studies of CLS lack of planning permission and building regulation approval Legal Indemnity Insurance policy claims

Case studies can help show extent of coverage and benefits of Legal Indemnity Insurance.

Case study one – a conservatory was erected with no planning or building regulation approval. The purchase was from a mortgagee in possession so normal pre-contractual enquiries could not be made. Years later, the insured was threatened by the local authority with enforcement action. CLS tried to reach resolution but the local authority would not compromise. The policy covered the cost of demolition of the conservatory and compensated for the reduction in market value of the property.

Case study two – the insured took out a policy when he bought a flat marketed with an accessible roof terrace because planning permission had not been obtained for the terrace by the previous owners. The local authority told the insured to remove the railings or face legal proceedings. An appeal was made at the request of the insured and funded under the policy. The appeal did not succeed so the railings had to be removed. The policy paid these costs and covered diminution in value. The policy paid just shy of £8,000 to the insured.

Case study three – the insured had a policy covering a non-compliant loft conversion. During a routine check on works to different part of the property, the inspector became aware of the loft conversion and declared the work non-compliant and unsafe to be used as a room. CLS instructed an expert loss adjustor to assess what works were required to make the loft compliant with building regulations and the cost. The policy covered an application to the council for a regularisation certification and the cost to make the loft conversion building regulation compliant. The total claim amounted to nearly £11,000 on a policy costing £35.

Is there a limit of indemnity in lack of planning permission or building regulation approval policies?

The period of insurance is from inception of policy and continues in perpetuity. The limit of indemnity is the limit requested in total. This amount increases to match actual increases in the value of the property, up to a maximum of two hundred percent of the sum stated.

What are the consequences of buying a property without planning or building regulation approval and with no Legal Indemnity Insurance policy?

A property purchaser may be lucky when buying a property that does not have planning for works or building regulation approval. There may be no local authority action or alternatively, within weeks of completion, the dream purchase could turn into a nightmare with the local authority requiring part of the property to be demolished. In addition, although the buyer may have intended the property to be their ‘forever home’, a change of circumstances, such as a divorce or new job, may require a sale that will be more difficult to achieve unless the planning and building regulation irregularities are rectified or Legal Indemnity Insurance is taken out.

A property purchaser risks a financial loss should the local authority issue an enforcement notice as the notice may lead to:

A reduction in the sale price if the issue is not resolved.
Financial loss through either rectifying or complying with the enforcement notice.

Is lack of planning or building regulation insurance available if a property owner has contacted the local authority?

To secure online lack of planning or building regulation approval cover the party seeking insurance needs to be able to state that neither seller nor buyer:

Is aware of enforcement action related to planning or building regulations having been taken or due to be taken in respect of the works at the property
Have communicated with the local planning authority in respect of any actual or potential building or planning irregularities at the property.

If these statements cannot be made in a standard Statements of Fact, then cover may still be available. For instance, if contact has been made with the local authority over five years ago cover can still be obtained online. If there has been contact within the last five years, an insurer will want to see a copy of the correspondence and the date and details of the specific works to be insured.

Will lenders lend on a property that lacks planning permission or building regulation approval?

Lenders are right to be concerned that local authority enforcement action could force a property owner to pay out large sums to comply with the enforcement notice leaving the owner unable to pay their mortgage debt or enforcement action could lower the value of their security. A lender is unlikely to want to lend on a property until planning or building regulation issues have been rectified or until there is Legal Indemnity Insurance cover in place as the insurance policy will cover the lender’s concern, namely the potential for diminution in value to the property if enforcement action is taken.

What does Legal Indemnity Insurance cover?

Legal Indemnity Insurance provides protection where there is a lack of planning permission or building regulation approval and where it is unknown whether works previously installed at the property were compliant with the appropriate consents. The policy provides protection where the local planning authority/building control issue an enforcement notice and can cover:

Lack of planning permission for work to the property or where conditions to planning have not been discharged.
No certificate of lawfulness for existing use or development.
Lack of building regulations consent, completion certificate or regularisation certificate or certificate under the Competent Person Scheme. This includes, but is not limited to, boiler installations, heat pumps, electrical installations including NICEIC, and FENSA certification for windows.
Lack of conservation area or listed building consent.
Lack of permission to construct a dropped kerb for driveway access.

What does lack of planning permission or building regulation approval Legal Indemnity Insurance not cover?

Whilst conveyancers understand what Legal Indemnity Insurance for lack of planning or building regulation approval covers many purchasers struggle with understanding coverage. The policy is not:

Cover for lack of planning or building regulation approval for work to a property completed within six months of the insurance request or four years if the property is listed or in a conservation area. However, lack of documentation for a relatively minor issue such as building regulation approval for a new boiler or lack of FENSA certificate for a new window may be covered in an offline policy.
Cover for new build property – the property normally needs to be at least six years old and the online policy does not cover lack of planning or building regulation approval for new build original construction but rather works to a property after construction, such as an extension or alteration. However, in some scenarios, offline cover may be available subject to information on when the property was built, who it was developed by and why sign off was not obtained.
A guarantee for the quality of the work undertaken without planning or building regulation approval.
Cover for future breaches of planning or building regulation approval over and above the breaches identified when the policy was taken out.
Compensation cover if remedial work is required other than in accordance with the policy terms. In particular, an insured will invalidate their policy if they speak to the local authority about the lack of planning or building regulation approval without the consent of the insurer and the unauthorised contact triggers enforcement action.
Where the insured has initiated the contact with the enforcing authority which later instigates a claim.

Making a lack of planning or building regulation approval Legal Indemnity Insurance claim

The policy is only triggered if enforcement action is taken by a local authority because of the lack of planning or building regulation approval for the breaches covered in the policy. The cover includes:

Assistance with legal challenge to enforcement action.
Cost of complying with a local authority enforcement notice such as demolishment of the work undertaken without planning or building regulation approval or the cost of rectification, so the work meets the required standard, or obtaining retrospective consent.
Loss of diminution in value to the property in appropriate cases. For example, if planning permission was not obtained for an extension and demolition means a property would be sold with two rather than the four bedrooms it was purchased with.
Any other costs and expenses that the insurer agrees in writing.

CLS here to help

CLS has over 15 years of experience in helping conveyancers with residential and commercial property transactions. Our online portal, PIPA is free to register and you’ll find our range of over 60 legal indemnity Insurance policies and products at your fingertips – including Variable Statements of Fact to let you customise to your client’s needs for the full range of legal indemnity policies. Online indemnity insurance protection can be available within a matter of minutes. If you’d rather speak to someone, we also have a team of specialists who can help you out with a bespoke offline policy.

This article was submitted to be published by CLS Property Insight as part of their advertising agreement with Today’s Conveyancer. The views expressed in this article are those of the submitter and not those of Today’s Conveyancer.