Spring 2018 ISSUE
FIRST COMMENT IN THIS ISSUE: • STREAMLINING THE HOME MOVING PROCESS • DEVELOPMENT RISKS • MISSING A PIECE OF THE JIGSAW? • CLAIM CASE STUDY - MINERALS
Leading Title Insurance
Welcome to the first edition of our newsletter for 2018. In this issue we have contributions from our regular writer; Professor Stewart Brymer gives his thoughts around the home moving process. Our underwriter contribution for this quarter comes from Liana Di Ciacca who offers an insight into several risks that are often identified when developers undertake due diligence.
Streamlining the home moving process by Professor Stewart Brymer Brymer Legal Ltd
The UK Government has indicated its commitment to improving the existing home buying and selling process in order to make it cheaper, faster and less stressful.
To this end, a Call for Evidence was issued in October last year,- see https://www.gov. uk/government/uploads/system/uploads/ attachment_data/file/653789/Home_buying_ and_selling.pdf - which sought views on how to achieve this goal. Responses to the Call, which was sponsored by the Ministry of Housing, Communities and Local Government, are currently being analysed. The first point to note is that the Call was stated to apply to England and Wales only. The last review of the process in Scotland was the work undertaken in 2003 by the Housing Improvement Task Force (â€œHITFâ€?),
Sub-Group B of which looked at a number of matters which resulted in the introduction of the Home Report. See www.scotland.gov.uk/ Publications/2003/03/16686/19494.
Why now? The Call has broad political support and Ministers are understood to be keen to see changes to the system. The Government listened to the case for reform and acted swiftly to seek views from those involved in the process. Cont/d
Educating buyers and sellers
The Call sought evidence on a number of issues with the goal being to help consumers make more informed decisions when selecting a conveyancer; and make improvements to the processing of property searches in order to speed up the selling and buying of homes. Those behind the Call were quick to point out that this would not lead to a relaunch of Home Information Packs which were widely viewed as a failure despite the huge cost associated with their introduction in England and Wales. Is that fear justified? Home Reports are now an accepted part of the home moving process in Scotland and, love them or loathe them, they have had an impact on the level of information available to prospective purchasers. There are still improvements required and it is disappointing that the Scottish Government appear to be unable to implement such changes in order to make the system better. That is for another day however.
Better information at point of sale
Sharing information about each other and increasing commitment
Buying a leasehold property
Buying a new build property
Any additional suggestions for improvement
The Call looked at common reasons for delay in conveyancing transactions and sought comment on: •
Harnessing digital technology
Mortgages and the requirements of lenders
The next steps The Call is the first step in a likely reform process. Once the responses have been analysed, the next step will likely be a detailed Consultation. It is anticipated that this might take place later this year as it is the stated wish of Government Ministers to see improvements made in the home moving process. As was said in the Foreword to the Call:
“More than one million homes are bought and sold every year in the UK – that means at least a million buyers, each working with professional support from estate agents, solicitors, conveyancers and mortgage lenders. People have been buying and selling their homes for as long as they have been building them. Given this long history, you would
FIRST COMMENT expect that by now the home buying and selling process would be smooth and simple. But we all know it isn’t. ….. Speak to someone who has just bought or sold their home and they will tell you that it took longer than they expected, cost more, and was frustrating and stressful. ….. It does not have to be this way, and it shouldn’t be this way. The government has committed to reforming the process – to make it cheaper, faster and less stressful. ….We are not looking to rip up the existing system and start again. The current process has evolved over centuries, and is shaped to the way in which we buy and sell. But that does not mean we shouldn’t make common sense improvements, or indeed look at more ambitious change where it is warranted.”
It is suggested that it is in the interests of buyers, sellers, lenders and their solicitors for the system to be improved. The so-called Millennial and tech savvy Gen X clients of the future will simply not accept that such transactions should be done the way they always have been done. To their eyes, the system will be viewed as being clunky, expensive and designed to suit those who administer it. They will be the drivers of change. Other countries are already ahead of the UK in modernising their home moving processes – the best example being Australia.
Conclusion An overarching strategic aim of any reform must result in the creation of a positive home moving experience through swifter certainty; fraud protection; and effective communication. We are already seeing moves towards enhanced verification of identity and the use of artificial intelligence in case management systems. It is suggested that it is inevitable that there will be a secure communication platform which links all property transactions. It is encouraging to see the work being done in this regard by HMLR and Registers of Scotland and other land registries in the UK and Ireland. In many respects, the Registries are the secure platforms and it must surely be the case that new systems should be plugged into these portals. The Call was a necessary first step in the reform process and it is hoped that it will have a catalytic effect on the industry where the call must surely be: reform or be reformed.
Development risks by Liana Di Ciacca Senior Underwriter & Solicitor
A number of our enquiries are received from clients acting in a purchase of a development site which is either presently undeveloped or will involve a change of use such as the demolition of an existing building to form a residential development.
When completing the due diligence exercise, a number of risks can often be identified which affect the title, such as minerals, title conditions and lack of access / services rights which need to be resolved before completion. Often the most practical solution for such risks is obtaining a title indemnity policy to protect the developer, lender and successors in title. Cover is most commonly obtained for the following:
Minerals It is very common in Scotland to examine titles where the minerals have been reserved to a third party. This can often be a concern for a development site where the foundations of the development may trespass into any minerals existing under the site. A view can be taken that it is unlikely for any mineral owner to obtain planning permission to work the minerals in certain areas. Nevertheless, the developer does not want to be held to ransom for disturbance of the minerals when the development commences. Identifying the benefited party of the minerals can often be difficult, costly and time-consuming. There is also a concern that approaching a benefited party for a waiver of the mineral rights could result in a large compensation payment being due.
title to the minerals is land registered is also an important factor when considering cover. The insured party should also disclose if they are aware of any mining being carried out within a one mile radius of the site and whether any contact or approach has been made to or by any third parties who may have the benefit of the mineral reservation.
Title Conditions Most titles are burdened by some form of title condition and there is often ambiguity surrounding whether certain title conditions are enforceable or not. Given the vast amounts of money which are involved in development sites, the developer does not want to take the risk that a third party could enforce any of the conditions which may prevent the development from proceeding. Some development sites can be contentious depending on the area and the nature of the letters of objections received pursuant to a planning application, which can cause concern for the developer. Requirements for considering this type of risk include being satisfied on the nature of the title condition, whether planning has been submitted, the nature of any objection letters, and whether third parties have title to enforce.
Our cover protects the insured 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 can also provide protection if a third party seeks to thwart the development or demands a ransom payment by claiming that the foundations of the development trespass into the minerals strata.
A title insurance policy protects the developer from any claims from a third party enforcing the breach of title conditions which could either delay or prevent the development from proceeding. Cover is of course extended to any lenders and successors in title.
When considering cover, it is useful to have sight of an updated coal report and a copy of the title containing the mineral reservation. Whether the
Plans for a development site are key to identifying whether the development site has adequate access and services rights. The site can often
appear to be served by an adopted road. However, the review of a road adoption plan can often disclose a gap from the adopted road to the site. Most commonly for development sites, it is a gap area that the developer is concerned about that perhaps has often been missed by the local authority for adoption, or perhaps remains in a residue title unknown to the legal title owner. Services to the site are often required through the gap areas / access roads and cover can also be considered in respect of lack of services rights. Our considerations for offering cover for this type of risk includes examination of the plans, investigations into whether the area in question is land registered, the current use of the area and consideration of any works intended over the area to facilitate the intended development. We would also check that no contact has been made with any party who could have legal title to the area in question.
The terms of the policy When obtaining a policy for any of the above risks, the insured must consider the level of cover required, which is often the full gross developed value of the site. More than one risk can be covered by one policy and, as above, the policy can be obtained to protect the developer, their lender and any successors in title. We also offer a developer policy which is a single policy in two stages, allowing the developer to derisk the site upon acquisition. However, only paying a proportion of the premium at the first stage and the remainder of the premium at the second stage when planning permission has been granted. Please do not hesitate to contact me or any of our team at First Title should you wish to discuss title insurance for a development site.
Missing a piece of the jigsaw? All property buyers need to be able to make an informed decision as to whether to go ahead with their intended transaction. To make a fully informed decision whether or not to proceed, the buyer needs as much information as possible about the property and its current ownership – particularly the ‘title information’.
So what is the situation for a buyer if there is a lack of title information, and what are the risks if proceeding in the absence of title information?
In these cases, the seller is unlikely to have all the title information relating to the property, and will probably be unable to obtain it.
What is title information?
What are the risks?
The title information relating to a property is the information about the legal and equitable (beneficial) rights in the property. These rights include, for instance, the legal ownership of the registered proprietors, any beneficial interests of third parties, servitudes (rights of way), and title conditions.
In the event that not all the information as to title is known, it is effectively like a jigsaw missing an important piece. There may be issues which are not known which, if known, could change the whole picture for the potential buyer. The risk of missing title information is that something later comes to light, and the buyer is then liable to a third party who asserts an interest in the property.
Whether it’s a small residential property or a large commercial development – the buyer can typically expect to be provided with the necessary title information before the contract stage. However, this is not always possible. In many transactions, the particular circumstances of the sale mean important information is either unknown or not available.
Why might title information be missing? There are various scenarios where the seller may not be able to produce the required title information relating to the property, for example, where: •
the seller is the executor, and the sole registered proprietor has died
the seller is a bank or building society selling as lender in possession, exercising its power of sale
the seller is acting as administrator or liquidator on an insolvency
If there is missing title information, particularly if that information is potentially significant (for instance, concerning a missing legal owner or a third party right of way over the land), there is a title defect. A defective title is a title where there is a risk that a third party could try to assert a legal or beneficial interest in the property which is adverse to the rights and interests of the property owner. If such a claim proved successful, the property owner will probably be liable for compensation and may have to relinquish at least part of their legal title. There is also the risk that their enjoyment and use of the property will be severely curtailed. In the commercial context, this could be disastrous in the absence of title insurance. First Title, for instance, recently assisted a commercial client (a property fund) who was seeking to buy a large entertainment complex which comprised restaurants, bars, a cinema and other entertainment areas. However, the development was being sold by administrators in an insolvency, and there was a minimum amount of information and disclosures during the pre-contract stage of the transaction.
The seller could not provide a title guarantee on completion, but First Title covered the risks (see below) to enable the buyers to go ahead with the transaction.
What is ‘title guarantee’? Title guarantee is an important principle in a property sale and purchase. In the contract of sale, the seller’s solicitors must provide that the seller sells the land with full title guarantee. Where there is a title defect in the absence of title information, full title guarantee cannot be given because of the seller’s limited knowledge of the property and of any third-party rights. Typically, no title guarantee will be offered by administrators and liquidators and other sellers who simply cannot provide good title to the property. Robust title indemnity insurance is available, however, for buyers (and any lenders) in these scenarios.
How can indemnity insurance help? It is important to understand that indemnity insurance cannot cure the title defect, but it will protect the buyer – and any lender – against the risks. In the case of our client’s entertainment complex, First Title was able to provide a bespoke Property Owner’s Protection Policy (POPP) which was additionally endorsed with other known risks. The property fund buyer, as well as the bank providing finance to fund the acquisition, wanted to protect themselves from any unknown risks given they were buying from administrators. Importantly, the policy was structured to cover the immediate successor to the property fund to enable them to dispose of the asset within a five-year time period.
How can First Title help? Robust title defect insurance from experienced legal indemnity insurers is vital where there is missing title information. Where the seller cannot provide the whole picture, there is no reason for the transaction to fail: First Title provides conveyancing clients, developers and their lawyers with title insurance to protect many different types of risks that could arise where title guarantee cannot be given on completion.
Making assumptions when it comes to title insurance?
Unlike some other providers, we: • can help with over 35 known
risks as well as providing bespoke cover • have one of the largest single underwriting capacities in the market • are directly responsible for handling and paying claims Call:
• are regulated by both the Prudential Regulation Authority and the Financial Conduct Authority • have a strong solvency profile as set out in our published Solvency and Financial Condition Report
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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.
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Claim Case Study:
Agricultural land had been secured by our insured who planned to develop it by constructing an anaerobic digestion facility. The title to the property contained a historic minerals reservation in a 1978 Feu Disposition, in favour of a third party as follows:
“the whole ironstone, limestone and other fossils, mines, metals and minerals (other than those vested in the National Coal Board) with full power to search for, work, win and carry away the same and to carry on such operations as may be necessary for any or all of these purposes, but not to enter upon or use the surface, subject to paying compensation for future damage to the surface of the ground or any buildings erected thereon” Whilst the owner of the minerals did not have a right to enter the property to work the minerals, there was a risk that the construction of the scheme may have disturbed the minerals. The developer was therefore concerned that the existence of the reservation may prejudice the proposed development on thel land.
Challenge A claim by a third party exercising in full compliance with all planning and other
statutory requirements, and with all licences from the appropriate licensing authorities mining / mineral rights contained in the relevant Feu Disposition.
Solution First Title were able to provide cover against a third party with the benefit of the mineral reservations, attempting to interfere with the surface use of the land by exercising the right to mine or extract minerals upon the following conditions: • Planning permission had been granted without any objections in relation to the minerals at the site. • The Coal Authority report did not disclose any material matters. • No approach had been made to or by any third party who may have the benefit of the mineral reservation. • Title to the minerals was not registered in the Land Register. • Only a proportion of the land was affected by the minerals reservation. For further information on how First Title can assist you with its range of specialist cover and policies, please contact directly using the details below.
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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.