I have been advising on developments now for about 30 years. However I still remember when I was training not appreciating that entries on the title register dating back to the 1800’s could potentially cause an issue.
Now more often than not I tend to need fairly bespoke policies to cover risks exposed during the due diligence process. We can and sometimes do use a variety of organisations for our policies but to be frank a lot of the time we are speaking to people who have little or no knowledge of property law, although they do understand actuarial risk. This is why for the last 20 odd years, time and time again I have called on the services of Mark Davies at Stewart Title.
Mark’s knowledge of property law is encyclopaedic and as such it means that we get exactly what we need to cover the given situation. On a few occasions Mark has told me/my client that we do not need cover. One of those occasions was a situation where there was a particular restrictive covenant that could have prevented a multimillion pound house being developed. Mark and I discussed the technical reasons why the restrictive covenant could not be enforced but in the end the client decided to nevertheless take out the policy. Years later when the redevelopment commenced sure enough an adjoining owner raised an issue. I am so glad the policy was in place but as it turns out the claim actually went nowhere.
On another occasion a client came to me with a unique development opportunity. He had acquired various garages that were on a particular site. Of course the Land Registry would only give him title over the site of those various garages. I visited the site with the developer and put forward a proposal. That proposal was for the developer to build, I think it was 4 houses, on the site in question and rent them out thereby creating an income stream. In addition, and this was key, I obtained a policy from Stewart Title which enabled the land to be developed. The cost of the policy was minimal when compared with the impact on the land value of the site. Also I told the client that over a period of time he could argue adverse possession over the entire site and eventually upgrade the title enabling him to sell on the properties if he so wished.
It is fair to say that the insurance market as a whole has evolved its product offerings to address covenants and other title issues. It is rare for me to be acting on a proposed development without needing a title indemnity policy of some description. They can and do minimise project delays and risks, with the costs built into the overall project costs.
Most recently I was approached in relation to a residential development site where we were not even acting. This was by word of mouth as both the seller’s and developer’s lawyers were struggling with a particular entry in the register which the Land Registry refused to remove. My task was to see if I could get an insurance policy which would enable a fairly exclusive development of houses to proceed. Again Stewart Title understood the issue and produced a bespoke policy to accommodate. We are now instructed on the plot sales.
Of course, when acquiring sites we often have to consider existing policies taken out by other lawyers. In a recent case the insurance only covered the title issue for the “continued use” of the site. This was of no use at all because our client needed to cover the use of the site for a residential development. Also the limit of indemnity was far from what was needed for the eventual GDV of the site. Stewart Title provided an appropriate policy and the other side contributed towards the premium.
Therefore title indemnity insurance can be highly efficient and a cost effective way of dealing with property subject to title issues. It is beneficial because it can help remove future impediments, delays, and risk.
Mark Davies at Stewart Title answers some of our questions on the topics.
What does a Policy do and what does the cover provide? It is probably easier to start answering this point by saying what a policy does not cover – it does not cover loss of profits or loss of bargain – it is after all an indemnity policy designed to put the Insured back to a position where the Defect did not exist. So with this in mind the general coverage offered for most indemnity policies cover:
- Diminution in value of the Property in the event that enforcement action is taken by a claimant against the Insured successfully – this does not mean that if a claim is successful you will get a full payment of the Limit of Indemnity but the difference between what you expected it to be worth, the Gross Developed Value and the market value of the Property once a claim has been concluded
- Costs and expenses associated with altering or demolishing the Property to comply with the settlement
- Damages or compensation awarded in court proceeding or agreed in any settlement
- Any costs associated with securing capital and interest incurred or contractual costs that because of the claim are rendered abortive
- Any costs and expenses incurred with the consent of the Insurer including defending a claim
Specific Risks Insured – Like most indemnity insurers we offer a full spectrum of different covers for different situations – the most popular involve either separately or in combinations the following covers:
- Restrictive Covenants
- Adverse Possession
- Access and Service Easements
- Rights of Light
- Defective Titles – missing documents – pages /plans missing, absent Landlords, Land Registry considerations such as Possessory Title and GLT – rights affecting Property
- Leasehold matters
- Mining Rights
- Planning matters
What information is required or assumed by the Insurer? In principle we like to assume our understanding of the risk is correct and thereby putting the onus on the Lawyers or Brokers to confirm that the assumptions we make are correct – if not then we will be told that this is not right. Before the advent of the Insurance Act 2015 Insurers could hide behind the 1906 Marine Insurance Act which said that if Insurers were not told anything that was subsequently found to be the case then the Insurers could walk away from any claim. Now that is not the case. If the Insured provides the Insurer with false or misleading information carelessly, the Insurer may:
- treat this policy as if it had never existed, and refuse to pay all claims and return the premium paid. However, the Insurer may only do so if it would not otherwise have provided the Insured with insurance cover at all;
- amend the terms of this insurance, and apply the amended terms as if they were already in place, if a claim has been adversely affected by the Insured’s carelessness;
- reduce the amount the Insurer will pay on a claim in the proportion the premium the Insured has paid bears to the premium the Insurer would have charged for the policy; or
- take a similar proportionate action.
The Insurer, or anyone acting on the Insurer’s behalf, will write to the Insured if the Insurer intends to treat this policy as if it had never existed, or amend the terms of the policy
What cannot be Assumed? Copies of site layout plans for one thing cannot be assumed and are very important for an Insurer to consider for most risks or the potential impact on neighbouring properties or possible claimants – copy planning permissions and objections raised during planning – any existing correspondence with potential claimants?
What does an Underwriter look for when assessing a risk? The beginning position of any Underwriter is what is the chance or likelihood of a claim being made? If a claim is likely what can be done to reduce the affect of any claim and the potential liability of the Insurers and how much is it likely to cost. At the end of the day the best-case scenario for us would be to insure risks where no Claim is likely to arise. However, if no Claims were ever to occur what would be the point of any insurance so if a Claim does arise can it be mitigated successfully by condition or otherwise?
Each matter that we deal with is different and depends upon the facts of the case and the parties involved. Also each Underwriter’s perception of a risk may be different depending on their experience and their individual assessment of the case.