Autumn 2019 ISSUE
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FIRST COMMENT IN THIS ISSUE: • REAL TIME FINANCIAL SETTLEMENT • MINERAL RESERVATIONS: WHAT TO CONSIDER? • FIRST TITLE’S ONLINE TITLE INSURANCE PLATFORM • CLAIM CASE STUDY: DRAINAGE
Leading Title Insurance
Welcome to the Autumn edition of our newsletter for 2019. In this issue Professor Stewart Brymer discusses the effect that synchronisation will have in the home moving process following the introduction of the Real Time Gross Settlement system (RTGS). Our underwriter contribution for this quarter comes from Liana Di Ciacca who looks deeper into our cover for mines and minerals.
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FIRST COMMENT
Real time financial settlement by Professor Stewart Brymer Brymer Legal Ltd In my article in the Summer 2019 Newsletter, I referred to the Bank of England’s project to reform what is called the Real Time Gross Settlement system (‘RTGS’). Settlement or completion of a conveyancing transaction involves delivery of title in exchange for payment of the price – a classic delivery versus payment model (‘DvP’). Traditionally, this was done by the solicitors of the seller and the purchaser meeting to effect settlement in person. The important element about any system of land tenure is evidence to support the claim of the person entitled to the land. In the early days of the feudal system, this
evidence was provided by the ceremony on the ground of giving sasine (from the Old French saiser, ‘to seize’), the ceremony performed when a feudal grant of land was made in exchange for payment. We have moved on from this type of settlement by using cheques and Telegraphic Transfer / Faster Payment and the transfer of title process has also developed from the registration of deeds to registration of title. Although things have improved considerably in recent years, there is still often an unacceptable delay and associated risks, e.g. cyber fraud around payment of the price.
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Following an industry-wide consultation, the Bank of England announced in May 2017 that it would be replacing its RTGS service. The new RTGS will involve the concept of synchronisation. The purpose of this article is to look at the proposed reforms and the effect that synchronisation will have in the home moving process.
What is synchronisation? At the heart of synchronisation is what has been referred to as ‘atomic settlement’. This means that the transfer of two (or more) assets will be linked in such a way as to ensure that the transfer of one asset occurs if, and only if, the transfer of the other asset (or group of assets) also occurs. As a result, the outcome of synchronised settlement is that either the parties successfully exchange the assets or no transfer takes place. The renewed RTGS service will deliver a range of new features and capabilities, including increased resilience, greater access, wider inter-operability, improved user-functionality and strengthened end-toend risk management.
Why will it be useful? In a standard home moving transaction, the owner of a house wants to sell that asset to another party. Understandably, the seller does not want to transfer
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ownership of the house to the buyer until they are certain that they will receive the payment and the buyer does not want to transfer the payment to the seller until they are satisfied that ownership of the house (title) will be transferred. Currently, RTGS does not have the functionality to allow parties to make one movement conditional on another, and while existing settlement models have developed to allow payment of the price to be made in exchange for title, they do not reduce the risk of one party owning both the asset and the funds. Synchronisation will allow conditional transfer of both parts of a transaction, by enabling a third party to co-ordinate the earmarking and then release of funds when appropriate conditions have been met. In Australia, the development of a national property exchange platform through a collaboration among all relevant stakeholders focused on the Central Bank has revolutionised the home moving space. This has done away with the need for a number of parties to co-ordinate fund movements to ensure that a transaction and, indeed, a chain of related transactions is completed on the agreed date and time. At the same time, registration of title is completed. Alongside a mechanism to deliver electronic settlement of housing assets, synchronisation will enable the
FIRST COMMENT implementation of a true DvP model of settlement for property transactions in the UK, reducing the level of complexity and cost in the process along with the level of risk. The renewed RTGS will facilitate a more streamlined and automated payment process which will remove the need for intermediaries to hold funds. Such a process, like the model already operating in Australia, will also allow all payments associated with a single housing transaction (for example stamp duty, fees, repayments to lenders etc.), to happen at the same time. This will improve the moving day experience by bringing greater time certainty and reducing risks and delays. That, in turn, fits with the Government’s wish to see the home moving process improved.
Who will be able to use synchronisation? The intention of offering synchronisation functionality is to cater to the demand for access to RTGS for an anticipated new generation of participants which will include:
(b) settlement participants holding accounts in RTGS; and (c) end-users whose transactions are being synchronised using the service. Synchronisation will be designed to enable effective collaboration between these parties, most likely within a suitable conveyancing case management system.
What next? The Bank of England is progressing its work on RTGS reform, and it is hoped that it will be completed by 2022. As that work develops, there will likely be a test system to enable prospective participants to experiment with the functionality of the new RTGS. The new functionality will undoubtedly play an important part in a developed, end-to-end digital conveyancing process. In my opinion, the phrase ‘E-Conveyancing’ is much used and little understood. For such a system to become a reality, there needs to be real progress made in both payment processes and title transfer. Without both taking place in a synchronised or atomic settlement, we will be stuck where we are.
(a) synchronisation operators (SOs) – independent third parties providing synchronisation services to settlement participants and end-users;
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FIRST COMMENT
Mineral reservations: what to consider by Liana Di Ciacca Senior Underwriter & Solicitor
Following the Claim Case Study outlined in our Spring 2018 Newsletter on how title insurance can assist with a mineral reservation burdening a title, we have received a large influx of enquiries in relation to mineral reservations for a variety of transactions including development sites, residential properties and commercial properties.
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So what does our cover actually offer? Our mines and minerals cover offers protection against the cost of defending, settling or compensating if a third party attempts to interfere with the surface use of the land by exercising the right to mine or extract minerals. It also provides protection if a third party seeks to thwart any development or demands a ransom payment by claiming that the foundations of the development trespass into the minerals strata. To demonstrate what information is required and our underwriting considerations in order to fully assess the risk and provide a quote, the following is an example of a case study.
Circumstances of the risk Our client was acting on behalf of the owner of a large vacant site previously used as agricultural land. The site was being developed for a large residential development.
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Confirmation of the planning permission reference number;
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The gross developed value of the site;
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An up to date Coal Authority Report; and
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A copy of the Title and Title Plan of the site.
Our underwriting assessment Once all the information had been received, we were able to complete our underwriting assessment by carrying out the following:
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Reviewing the Coal Report and checking that the Report did not disclose any adverse matters.
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Considering the terms of the mineral reservations and whether there was any assistance from compensation provisions. In this case, there were no compensation provisions.
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Considering the benefited party to the mineral reservations. In this case, we carried out further investigation into entity holding the benefit of the reservations,, ensuring they were no longer active.
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Carrying out British Geological Searches and reviewing borehole data to ascertain what exactly is lurking underneath the surface, which would assist in mitigating our loss in the event of a claim.
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Checking Scotlis ensuring there is no separate legal title to the minerals.
The title to the site was burdened by three separate mineral reservations held within the deeds. Planning permission had been submitted for the intended development. However, a decision was pending. The period for objection had expired, and the client required the policy on risk prior to the grant of planning permission.
Information required to assess the risk In order to commence our assessment of the risk, we required the following information:
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FIRST COMMENT 6.
Reviewing the planning permission obtained to ensure that no third parties who may have the benefit of the minerals reservation have objected and no objection letters referred to the minerals.
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Confirming whether any contact or approach had been made to any potential benefited party of the mineral reservations.
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Checking adjoining titles for similar reservations and ensuring these had not been discharged.
Should you wish to discuss title insurance in relation to mineral reservations, please do not hesitate to contact us.
Solution Following the completion of our underwriting assessment, we were fully satisfied with all of our underwriting considerations. We were able to offer cover, prior to the planning being granted, to ensure that the developer had the assurance required to progress the development. In addition, cover was also sought for access and services as the verge bounding the site was not adopted by the local authority nor was it within the owner’s title. Following an additional underwriting assessment on the verge area, we were also able to include these risks into the minerals policy for a slight increase in the premium. One policy allowed the developer to present a cleaner title to any future purchasers and their lenders. The policy is, of course, binding on successors in title and is in perpetuity and, therefore, all future purchasers and lenders would have the full benefit of the policy.
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First Title’s online title insurance platform. First Title’s online platform is aimed at reducing response times for 25 of its most popular known risk title insurance policies. Fast Title, which is well established south of the border, is available for Scottish residential solicitors.
Why use the Fast Title platform? Benefits include: • Cover for 25 different known risks. •
Single risk premiums discounted by up to 20%.
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Cover online provided up to an indemnity level of £5 million.
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Easy, quick and convenient to use, available 24/7.
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The ability to self-issue policies at the click of a button and deliver them instantly to your email address.
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Demands and Needs statement available as standard.
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Access to all of your company’s cases, not just your own.
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200% inflation cover is provided free of charge*.
(* Inflation cover applicable to owner coverage policies only).
Policies will be considered offline if online assumptions cannot be met. If in doubt, please contact us.
Kevin Dick (Chief Operating Officer) commented; “As one of the only title insurance companies with an established and local presence, it’s imperative that we listen to our clients and that we continue to innovate and expand our customer proposition in Scotland. To this end we have conducted a wholesale pricing review of all of our residential risks and this, along with the introduction of the Fast Title online system, ensures that we can continue to build upon our success in this territory. The purpose of our platform is not to replace the work undertaken by our underwriters and they will still be on hand, providing the same first-class service our clients expect from us. Fast Title is a robust and easy to use platform that allows our clients access to our most popular assumptive known risk policies without the need for underwriter approval. This ensures that our clients can take care of this element of the conveyance quickly and efficiently, allowing them to concentrate on other aspects of the transaction.”
Leading Title Insurance
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Short on time? Head online
When you uncover a title problem, you want the right solution fast. Our online system issues 25 different known risks, 24 hours a day, seven days a week. Our expert underwriters have developed a series of clear and concise risk assumptions, so you don’t have to go to the trouble of providing things like Statutory Declarations and plans.
Call: +44 (0)141 413 8809 Email: scotonline@firsttitle.co.uk
The result? You can receive your quote, draft or policy instantly without having to wait for an underwriter’s response. And with single risk premiums discounted by 20%, and 200% inflation cover as standard, as well as the ability to fully manage your or your firm’s caseload from within the platform, there’s never been a better time to choose First Title.
Leading Title Insurance
First Title Insurance plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. First Title Insurance plc is registered in England under company number 01112603.. Registered office: ECA Court, 24-26 South Park, Sevenoaks, Kent, TN13 1DU.
Claim Case Study:
FIRST COMMENT
Drainage Background
The insured purchased the property, a fourbedroom detached house, in Scotland as their family home in March 2016. The property was connected to a septic tank located on a neighbouring farmer’s land, but it did not benefit from an express legal right to drain into the septic tank. The septic tank had been in place and used by the property for many years before the insured’s purchase, and the policy was obtained to cover the property’s lack of formal drainage rights.
Challenge Some six months later, the septic tank was found to be leaking and in desperate need of maintenance and repair. When the insured tried to resolve the situation the owner of the land, on which the septic tank was located, obstructed the insured’s access to, and partially covered, the septic tank with rubble and hay bales, thereby preventing the insured from carrying out the necessary repair works. The neighbour alleged that the insured had no right to use or access the septic tank.
Solution The insured was fortunate to have a policy for a lack of drainage servitude with First Title. It was clear from the evidence that the insured benefited from a servitude right of drainage by prescription. In the first instance, the possibility of reaching a resolution with the neighbour was explored.
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Unfortunately, an amicable resolution proved impossible to achieve and, therefore, Court action was instigated. Interim interdict orders were obtained from the Court to prevent the neighbour from obstructing the insured’s servitude right of drainage and requiring the neighbour to remove the rubble and hay bales. A Court action was also raised for a decree of declarator in respect of the insured’s servitude rights. Ultimately, in the lead up to the Court hearing, an offer of a servitude was received from the neighbour whereby he would grant the insured a full legal right of drainage over his land (together with rights of repair and maintenance) and enter into further negotiations regarding the exercise of these rights. The offer was made on a drop-hands-basis, with both parties bearing their own costs. In order to bring a swift end to this action for the insured and prevent the hearing proceeding in Court, the neighbour’s offer was accepted. A joint minute was obtained from the neighbour, agreeing to the existence of the servitude right of drainage and vacating the hearing to negotiate terms. Terms were subsequently finalised which were agreeable to the insured. All the legal expenses incurred on this claim, including all the court actions, were paid by First Title under the terms of the policy.
To find out more about our products and services email scotinfo@firsttitle.co.uk or call +44 (0)141 413 8800
www.firsttitle.co.uk
First Title Insurance plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. First Title Insurance plc is registered in England under company number 01112603. Registered office: First Title Insurance plc, ECA Court, 24-26 South Park, Sevenoaks, Kent TN13 1DU.