24.10.2022

W&I insurance supports the risk management of real estate transactions

The volume of real estate transactions keeps increasing despite the exceptional circumstances, but in this changing and unpredictable global situation risk management plays an even more crucial role when real estate business operators assess sale and purchase processes. In transactions, both parties aim to limit the risks related to the transaction to the best of their abilities – the seller with means such as limitations of liability in the sale and purchase agreement and the buyer with a due diligence review that is as extensive as possible.

W&I insurance is a tool for both the seller and the buyer to manage the risks related to the transaction, and in recent years the use of the insurance in real estate transactions has increased clearly. However, W&I insurance still raises a lot of questions. The main ones are what the insurance is, which benefits it offers and which practical measures the policyholder needs to take if they want to insure a transaction.

W&I insurance in a nutshell

W&I insurance means warranties and indemnities insurance. At times the insurance is also called transaction insurance. As the name indicates, W&I insurance insures the seller’s liability for the warranties the seller has given in the sale and purchase agreement in relation to the object of sale. 

On one hand, the purpose of W&I insurance is that if the buyer notices that a seller’s warranty under the sale and purchase agreement has been breached, the buyer can make the claim for damages due to the breach of the warranty directly to the insurance company. On the other hand, the seller avoids discussing the breach of the warranty with the buyer and the costs arising from the possible liability for damages due to the breach. In its basic form, W&I insurance covers all of the seller’s warranties under the sale and purchase agreement. The seller may only end up being liable for damages instead of the insurance company (or having to compensate the insurance company) in situations where the breach of a warranty results from the seller’s wilful misconduct or gross negligence.

W&I insurance is usually taken out by the buyer, and it is usually bought through an insurance broker. Brokers collect basic information about the object of sale and purchase, its value and the structure of the transaction and request to see the draft of the sale and purchase agreement. Based on this information, brokers request offers of insurance terms and of the price for the transaction on behalf of the buyer from insurers that distribute transaction insurance policies. Brokers are also a valuable help in evaluating the offers since they have more experience and thus a more in-depth view on which insurers and insurance policies could be suitable for the transaction in question.

Does your transaction need W&I insurance?

W&I insurance is suitable for transactions of different types and sizes so when considering an insurance policy, the value of the transaction in euros or the type of the object of sale and purchase alone do not indicate whether the transaction is suitable to be insured or not. W&I insurance is flexible and can even be applied to more challenging situations in the transaction structure. For example, even if there is a long period of time between the signing and the completion, insurance brokers may still find suitable solutions. In addition, the price of the insurance policy is tied to the sum insured, which means that transactions with smaller value are also worth insuring. The biggest challenge for the insurability of a transaction is usually that the buyer does not want to conduct an extensive due diligence review of the object of sale– the insurers’ key requirement when assessing insurability is expressly an extensive and thorough due diligence review.

It is in the best interests of the buyer to take out an insurance policy particularly in situations where the fund or other entity acting as the seller will be dissolved after the transaction, which means that after the completion of the transaction there will no longer be a seller party to which the buyer can make claims about breaches of the seller’s warranties. Taking out W&I insurance is generally in the best interests of the seller in all situations and particularly when the buyer pays the costs of the insurance policy and when taking into account that the seller’s warranties may be more extensive in insured than in uninsured transactions. Insuring a transaction can in turn help the seller to get a better price for the object of sale and purchase. 

Practical tips for taking out W&I insurance

If you are insuring a transaction for the first time, here is a list of measures that in our experience are the most important steps:

Latest references

We advised a fund managed by Swiss Life Asset Managers Nordic in its acquisition of a logistics property in Hyvinkää from a fund managed by Savills Investment Management. In addition to advising on the transactional aspects, we also advised on the financing of the acquisition as well as in designing an appropriate international acquisition structure and addressing relevant tax implications. The property serves as the central warehouse in Finland for Ahlsell, a leading Nordic technical wholesaler, which has been leasing the property since its construction. The state-of-the-art logistics centre was originally built in 2002 and has undergone several improvement projects over the years. The latest extension, completed in 2024, added around 11,000 square meters of new storage area to the property, bringing the total lettable area to 47,000 square meters. The property has been developed with a strong emphasis on energy efficiency with on-site solar power and renewable district heating. The sustainability features of the property were also further optimised and the asset just received BREEAM Excellent certifications in both BREEAM New Construction and BREEAM In-Use.
Case published 20.1.2025
We advised eQ Community Properties Fund in its acquisition of a property portfolio comprising a health centre in Espoo, a daycare property in Vantaa, an elementary school in Helsinki, and a parking facility property in Helsinki from Ilmarinen Mutual Pension Insurance Company. The lettable area of the first three properties is approximately 13,900 sq.m., while the parking facility offers 120 parking spaces. The portfolio’s tenants include the City of Helsinki, the City of Vantaa, the Western Uusimaa Wellbeing Services County, and Aimo Park Oy. In connection with the transaction, Ilmarinen invested in eQ Community Properties fund as per 31 December 2024.
Case published 9.1.2025
We are acting as a counsel to Fortum in a transaction in which Fortum is strengthening its renewable power project pipeline through the acquisition of a project development portfolio from Enersense. The debt-and-cash free purchase price is approximately EUR 9 million, with the potential for project-specific earn-outs subject to projects successfully reaching a final investment decision in the future. The transaction is subject to customary closing conditions and is expected to be completed during the first quarter of 2025. Fortum is a leading Nordic energy company with the purpose to power a world where people, businesses and nature thrive together. Fortum’s core operations comprise of efficient, CO2-free power generation as well as reliable supply of electricity and district heat to private and business customers. The company is listed on Nasdaq Helsinki. One of Fortum’s strategic targets is to develop at least 800 MW of ready-to-build onshore wind and solar projects by the end of 2026.
Case published 19.12.2024
We assisted Nrep in the development of a residential building that will be built adjacent to the Arabia Shopping Centre in north-eastern Helsinki. Our assignment included assisting in a financing arrangement for the residential building, together with corporate and real estate arrangements related to the project. This involved restructuring through share transactions and a demerger, a zoning change, a change of plot division, a joint arrangement, and a management division agreement. The new 16-storey residential building will consist of 188 Juli Living rental apartments and additional business premises on the street level. Once completed, the building will be one of the most energy-efficient residential buildings in Finland. The financing arrangement complies with Nrep’s sustainability targets. LEED Platinum certification will be applied for the project, while the previous two LEED Platinum certificates for residential buildings have been awarded to Nrep’s Herttoniemi and Friisilä sites.
Case published 28.10.2024