When it comes to purchasing commercial property there is a lot of risk involved, not only with regards to market, but also in terms of the condition of the property that is being purchased.

There are certain checks that most experienced investors would do, and buyers will also have a solicitor doing due diligence, but at the end of the day, much of the information provided about the property upfront will be based on what the seller has provided. This is the reason warranties from the seller are often put in place. 

However, there are a lot of negatives to this system, mostly boiling down to the reason why a commercial property is sold; because the owner wants to free up capital to use elsewhere. As the need for seller warranties are in place, the seller will have to leave some of the sale price in an escrow account, which will be monitored by solicitors for an agreed period of time. This is where warranty and Indemnity insurance comes into play. If the parties in the transaction take out warranty and indemnity insurance, the seller will can walk away with the full price for their sale and the buyer will be fully protected for any problems which may arise. 

Eugene O’Sullivan a managing director and chartered commercial surveyor at Morgan Pryce said: “Warranty & indemnity insurance is becoming increasing popular in the market, as it takes away the risk of fraudulent statements from sellers. Additionally, it means there is no need to create a court case down the line if there are any problems with the building, a procedure which can be costly for both parties.”

“If warranty and indemnity insurance is taken out and there is a problem, it is the insurance company’s responsibility to make any legal claims from the seller. This relives the buyer from the industry accepted notion of ‘buyers beware’.

This news was brought to you by Morgan Pryce, a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants.