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.