2020-08-12
Legal Articles

Protect against title defects using legal indemnity insurance

Home / Knowledge base / Protect against title defects using legal indemnity insurance

Posted by Claire Waring on 09 June 2012

In the world of development, title defects are not unusual, and legal indemnity insurance (if available) can be a quick way of dealing with them.

Increasingly, legal indemnity insurance is being offered by sellers and demanded by buyers in order to protect the buyer (and their lender) from actual or perceived title defects. Legal indemnity insurance which was once generally used only as a last resort is now increasingly viewed as a quick and low-cost way of dealing with a title defect so that the defect does not prejudice or delay a sale. The title defect may well have been in existence for a great many years while it may be possible to analyse the defect in detail and come to a considered judgment as to whether or not the nature of the defect is such that there is a genuine likelihood of a problem arising. It is often much quicker and cheaper to pay the premium and effect an indemnity policy; however, remote the possibility of an actual claim might be. The existence of an indemnity policy should ensure that the price realised on a sale is not reduced by reason of the defect and will avoid potentially protracted discussions and /or disagreement between solicitors as to whether or not the defect is ever likely to become a problem in reality.

It is worth remembering that such a policy does not actually remedy the defect in question. Instead, it provides financial compensation in the event that the defect results in financial loss.

A legal indemnity insurance policy will attract a one-off premium, and the benefit of the policy is normally transferred automatically to successors in title (and their lenders). Premiums are generally charged on a sliding scale depending upon the value of the property and the nature of the defect. 

Common types of legal indemnity insurance

Some of the more common types of legal indemnity policy include:

  • Breach of covenant indemnity insurance: this would be used where, for example, a restrictive covenant affecting a freehold title has been breached. 
  • Absence of easement indemnity insurance: this would be appropriate where, for example, some part of the property is accessed over private land. Still, there is no apparent legal right to exercise such access. 
  • Lack of planning permission/building regulations approval indemnity insurance: this very common indemnity insurance is routinely affected where the property has been built, altered or extended without the benefit of planning permission and/or building regulations approval. The policy should cover financial losses suffered by the owner of the property in the event that the local authority took action for breach of planning or building regulations. This insurance is usually only available for work that was carried out at least 12 months ago. An insurance policy does not mean that building work which may have been carried out without planning permission or building regulation consent is safe.

Legal indemnity insurance policies should be chosen and used with care and details of the cover provided should be very carefully checked to ensure that the risk associated with the defect is adequately covered.

The cover is not always available dependent upon risks. However, insurers vary in approach, and it is always worthwhile investigating first.

About the author

Claire specialises in residential development and social housing portfolio securitisation. Claire’s clients include developers, promoters, land owners and Registered Providers.

Claire Waring

Claire specialises in residential development and social housing portfolio securitisation. Claire’s clients include developers, promoters, land owners and Registered Providers.

Recent articles

20 October 2020 Setting up an EMI scheme for your company

Over 12,000 companies across the UK use an EMI scheme (Enterprise Management Incentive) as a way of attracting, retaining and motivating their key employees. Our guide covers all the steps to set up your EMI scheme.

Read article
16 October 2020 Sales and leasebacks and the changes to the planning use classes order

We're covering just two topics very different to each other but both in their own way creatures of this pandemic which is truly dominating our lives. Those topics are sales and lease backs and the recent changes introduced to the planning use classes order

Read article
16 October 2020 Co-habiting couples - How much protection do you have?

It is becoming more and more common for couples to live together and start a family without getting married or entering into a civil partnership. Until the law catches up in this area, cohabiting couples need to be aware of their limited legal rights.

Read article
Contact
How can we help?
01926 732512
CALL BACK