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If you have ever had to deal with the sale of a property and there has been an issue with the title or something else which has caused a problem you may have been asked to provide a defective title indemnity policy. This blog explains what they are and when they can be used.
What is a defective title indemnity policy?
A defective title indemnity policy is a type of insurance that can be put in place in order to protect the owner of a property and/or their mortgage provider against potential financial loss as a result of a particular issue. The policy is an alternative to remedying the issue and is often the quickest and cheapest way of dealing with the issue.
While a policy can be put in place at any time it is usually obtained as part of a conveyancing transaction. The problem will usually be raised by the purchaser’s solicitor as part of the title examination process and a policy may be offered by the seller to avoid the transaction being prejudiced or delayed.
Unlike car or home insurance policies which must be renewed annually, title indemnity policies require a one-off premium calculated according to a) the value of the property and b) the perceived risk. Usually premiums are paid by the seller. Most policies protect the current property owner and subsequent owners as well as any mortgage provider with an interest in the property but on some occasions a policy might be taken just to protect a mortgage provider.
What title defects can be covered by a defective title indemnity policy?
Cover can be arranged for a number of issues. Some of the most commonly arranged policies cover:
Lack of title – for example a plans report highlights an area of garden ground that has been occupied for many years but to which the owner has no legal title. A claim would be made if the true owner successfully raised an action to claim title to the land in question.
Absence of Planning Permission, Listed Building Consent, Building Warrant or Completion Certificate in respect of the construction, alteration or extension of a property. Here, the policy is an alternative to obtaining retrospective consent or a “letter of comfort” and would provide financial compensation should the local authority take enforcement action in the future.
Lack of necessary rights of access to a property over land that is owned by someone else. If the owner of the property was prevented from taking access, the policy would cover the cost of obtaining the necessary rights of access or the loss of value of the property.
One important caveat is that if a potential claimant is made aware of the issue or the existence of the policy then the policy will likely be invalidated. As with any insurance policy, it is important to read the small print and make sure that the cover being offered is sufficient and that all relevant information has been disclosed to the insurance provider.
If you are having difficulties with a sale and think that a defective title indemnity policy might be a solution please get in touch with a member of the Blackadders’ Residential Property Team working in Aberdeen, Dundee, Edinburgh, Glasgow, Perth, and across Scotland.
Katharine Smith, Director
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