Transfers: when an indemnity covenant is required

by Practical Law Property

A practice note examining the use of indemnity covenants in the sale of freehold and leasehold land. This note explains how an indemnity covenant, a form of positive covenant, can protect a seller against ongoing liabilities after a transfer is completed. It describes the formation of a "chain of indemnities" and the implications when this chain is broken. The note explores when a buyer must provide an indemnity, particularly in the context of freehold transfers with positive covenants and leasehold assignments. It clarifies the distinctions between "old" and "new" leases under the Landlord and Tenant (Covenants) Act 1995 (LTCA 1995) and the effect on a seller's liability. This practice note also addresses specific circumstances, such as sales by insolvency practitioners and personal representatives, and the ongoing obligations related to landlord and tenant covenants.