Spring 2019 ISSUE
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FIRST COMMENT IN THIS ISSUE: • WHO AND WHAT IS THE FOCUS OF THE HOME MOVING PROCESS? • POINTS TO BEAR IN MIND WHEN OBTAINING TITLE INSURANCE • CLAIM CASE STUDY - ACCESS
Leading Title Insurance
Welcome to the Spring edition of our newsletter for 2019. In this issue we have a contribution from our regular writer. Professor Stewart Brymer considers the work of the England and Wales Home Buying and Selling Group and outlines the steps required in order to bring about improvements in the home moving process. Our underwriter contribution for this quarter comes from Laura Lapsley, who outlines the points to bear in mind when obtaining title insurance.
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FIRST COMMENT
Who and what is the focus of the home moving process? by Professor Stewart Brymer Brymer Legal Ltd
As noted in the 2018 Spring issue of First Comment, the Westminster Government is committed to improving the home moving process in England and Wales. Various industry groups are working collaboratively in the form of the Home Buying and Selling Group (‘HBSG’) towards delivering systems which will enable prospective purchasers to have better information on properties, be they freehold or leasehold. So far, there is not a similar group in Scotland to the HBSG and, to the best of my knowledge, the Scottish Government has not yet engaged in what is a very worthwhile process. Hopefully, that will change soon.
Why is change required? One could pose the question differently, namely: if we were to design a home buying and selling process today, what would it look like? It is suggested that even the most dedicated supporters of the existing home buying and selling systems in the UK would have difficulty in arguing that some form of change is not required. In my opinion, while the present system has served us well over many years, it is now showing signs of stress, and needs an overhaul, so that it is fit for purpose in
today’s consumer-focused society. Put simply, consumers deserve better. If we start with that assumption and keep consumers‘ interests to the fore, then this must inevitably lead to a series of reforms which, together, will amount to a fairly radical overhaul of the present systems. At the core of that change is the central driver towards transparency. Much more can be done to make the current systems more transparent and, quite frankly, less frightening, for the average consumer.
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How will that be achieved?
should be on providing better information in an understandable format: not information overload. Put simply, the property should be lender and purchaser ready. That was the way it used to be when a property was only exposed for sale when all relevant material and pre-sale title checks had been carried out.
Change is rarely, if ever, a single step process. More often it is the result of a series of small steps which, when viewed together, result in a major step forward. In no particular order, it is hoped that the work of the HBSG will lead to changes being introduced in the following areas: 1.
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Better information in the form of buying and selling guides for prospective buyers and sellers. This will enable consumers to be better briefed than is the case at present. While there are some excellent initiatives in this area by estate agents, lenders and solicitors, more can be done to improve the overall level of knowledge across the board.
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Reservation Agreements – while there are arguments for and against such agreements, few can argue against their effectiveness being properly tested. If their use leads to the process being speeded up and becoming more certain, then surely that must be a good thing.
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Central Property Portal – in today’s digital society, who is to say that we could not develop a central property portal, where relevant information on properties is stored by reference to their Title Sheet numbers and / or Unique Property Reference Numbers (UPRNs). A lot of work has been done in recent times to rationalise UPRNs, and the recommendations of the Geospatial Commission should be of interest in this regard. It will enable better information to be collated and made available to surveyors and conveyancers alike.
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Trading Standards – central to any creation of new regulations will be enforcement. This will be the role of Trading Standards. This year we will see new regulations for estate agents and more of the same will follow. There has to be a level playing field.
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Insurance – most life events are insurable, and property is no different. While not advocating that we move anywhere close to the American system, I can envisage a time when Title Indemnity Insurance will play a more positive role in the home moving process. At present, title insurance is generally associated with underwriting a risk when something has gone (or could go) wrong. What if the same insurance was used in a more positive manner to provide a standard as to what constitutes a good and marketable title for example? There are already some interesting developments in this area, and more will follow.
Education – better education of those involved in the process should be a sine qua non. I very much doubt if anyone who works in the process gets up on any given day with a mind not to perform well in their job. We must, therefore, ensure that there are sufficient educational initiatives developed, which result in a well-educated workforce. This, in turn, will lead to a better-informed public, which should then lead to smoother transactions on a level playing field, as it were. Better provision of data on properties for prospective purchasers. This can be in the form of a Property Passport or a validated Property Information Pack. There are also a number of interesting initiatives currently being advanced which allow lenders to better assess whether or not to lend on the security of a particular property. These, in turn, will influence the form and content of surveys / valuations of properties which, by necessity, will then impact on the investigative work expected of conveyancers under the UK Finance Lenders Handbook. Despite the negative press around Home Information Packs when they were proposed, who can really argue against prospective buyers having access to better information on properties? The mistake last time was to overload this information in a barely understandable format at the front end of the process. It is suggested that this time, the focus
FIRST COMMENT
Conclusion There are many, and varied, interests in the present house buying and selling system. To introduce a different way of working involves change and change, in turn, leads to fear and the perception of risk. As a result, these fears and perceptions require to be addressed as part of the change process. To do otherwise would be wasteful. The HBSG has covered a lot of ground so far, and it is to be commended for so doing. As stated at the outset, this industry will benefit from change and innovation, and it is better that this be led by the industry itself. We would do well to remember that we are all buyers and sellers at some point.
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FIRST COMMENT
Points to bear in mind when obtaining title insurance by Laura Lapsley Assistant Commercial Underwriter
When a title insurance policy is being obtained from First Title, an underwriter will be able to provide guidance and discuss available options. However, there are things that you can think about, as a conveyancer, to ensure that the process runs as smoothly as possible and to guarantee that your client is fully protected. I will highlight some points to bear in mind, which will ensure a seamless insurance process and allow you to find the most suitable and comprehensive cover for your client.
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First of all, it is helpful to consider title insurance as a possibility as early as possible in your client’s transaction. Often, title insurance is only considered when other corrective conveyancing options have not been successful, for example, an approach has been made to a neighbouring proprietor to request formal access rights, and they have refused, or the Local Authority has been contacted for building consent and they have required further remedial works to be carried out. If a transaction is due to complete imminently, then there may not be time to pursue these options, and so title insurance is sought. However, title insurance is generally based on the principle that no contact or attempted contact has been made with, or by, the third party (who could potentially make a claim under the policy), to alert them to the existence of the risk. If an attempt has been made to correct the defect, and the party who could potentially make a challenge is now aware of the issue, it is likely
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that First Title will not be in a position to assist at that stage, as the likelihood of a claim will be increased. Therefore, it may be helpful to present title insurance as an option to your client at the outset, making it clear that if another route is taken to correct the title defect, then title indemnity may not be available further down the line. Another important point to consider, as it will affect First Title’s drafting of the policy and the premium, is the current use of the property and whether development or a change of use is planned. First Title policies contain an insured use which is covered by the policy, which will either reflect the current use of the property (if this is to continue) or a proposed development / change of use. If planning permission has been obtained for a development, this will also be noted in the policy. In the event of a claim, it is important that the insured use under the policy corresponds with the actual use of the property on the ground, otherwise, it is possible that the policy cannot be relied upon. The question of use is so crucial from an underwriting point of view because it has a direct impact on the level of risk. For example, if cover is sought for a risk relating to access, development of the property can draw attention to the lack of access rights;
FIRST COMMENT perhaps if the legal title owner of the road and / or neighbours are notified as part of a planning application or if the use of the road suddenly intensifies with higher levels of traffic or use by construction vehicles. A road may have been used without issue for many years. However, any changes to the status quo can potentially highlight the risk and trigger a claim. The insured use is also important from your client’s point of view, as it will help them get the most out of the policy. The majority of our policies are designed to last in perpetuity and pass automatically to successors in title. Therefore, it should not be necessary to obtain a new policy with each change of ownership. Of course, the situation may change down the line, and First Title can consider any required amendments to the policy (or whether a new policy is required). However, it is helpful to consider who will have the benefit of the policy going forward and how they intend to use the property. If this is reflected accurately in the policy, then your client should be able to rely on this for many years to come without any further action being required. A further question to ask yourself throughout the process is, who the insured party under the policy is and whether the policy meets all their requirements and cover their situation. In most cases, insurance is obtained for the benefit of an incoming purchaser of a property, and so it would
be their maximum potential loss that would be covered under the policy (generally the current value of the property or gross developed value if the land is to be developed). However, depending on the transaction, there may be other parties involved who will have an insurable interest in the land and may wish for their losses to be covered under the policy. For example, you may be acting on behalf of a tenant who will be entering into a lease in respect of the land. In that case, their loss may not necessarily be linked to the market value of the land. Their concern may relate to their expenditure on fit-out costs or loss of profits etc. In that case, additional endorsements can be added to the policy to provide more bespoke cover. Alternatively, if the transaction is a refinance, it may be that cover is required for the lender only, in which case, the loan amount will be the appropriate amount to insure. For this reason, as well as providing First Title with details of the risk to be insured, it is also helpful to provide some background information as to the format of the transaction, i.e. what parties are involved and whom you act for. This will allow us to develop a better understanding of you and your client’s needs. When considering the policy wording and terms, it is worth noting what losses are covered under the policy. While it cannot be predicted with absolute certainty, it is useful to think about how a claim might arise and try to envisage what losses your client might suffer, to ensure that this scenario would be adequately covered under the policy. First Title policies cover actual loss which is linked to the diminution in value of the land which is why it is important that the policy amount covers the full value of the property. Depending on the nature of a claim, the actual loss may be more linked to sums that the insured is liable to pay pursuant to an order or settlement. It is worth noting that legal expenses are also covered in addition to the policy amount. While the main focus when obtaining a title insurance policy is usually the title defect / risk identified, it is useful also to consider the intention of the policy itself: who is to be insured and what losses are envisaged? First Title are able to discuss available options so that you can advise your clients on the solutions available to protect their interests. 9
Ironing out the creases from property transactions for 35 years
Call: +44(0)141 413 8800 Email: scotinfo@firsttitle.eu Visit: www.firsttitle.eu 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.
Leading Title Insurance
FIRST COMMENT
Claim Case Study:
Access
Background
Solution
The insured purchased a large residential property in disrepair and commenced work to renovate it immediately. The only vehicular access route to the property was via an accessway.
First Title obtained further advice from Counsel on the insured’s rights over the accessway.
Challenge Three months after the purchase of the property, the insured received a letter from the owner of the accessway who requested that the insured confirm that they have no right of access over it. The owner requested that the insured stop using it and, when the insured continued to use it, they placed an obstruction on the accessway to prevent the insured getting any vehicles to the property. There was nowhere for the insured to park nor was there any other access to the property by car. The insured raised a claim with First Title against their policy which provided cover in the event the insured was prevented by the legal owner from using the accessway leading to the property.
Counsel confirmed that the insured did not have a prescriptive right of way over the accessway, this was because the original vehicular access to the property had been stopped by the local Council and access was now via a new housing estate. This had not been used for a sufficient period of time for prescription. Counsel also confirmed that it was not a public right of way. Counsel did advise, however, that the insured could establish a servitude right of way by acquiescence. Counsel prepared a Court of Session Summons which asserted the insured’s servitude right over the accessway by reason of acquiescence. This was sent to the owner of the accessway prior to it being issued at Court, which prompted the owner of the accessway to enter into settlement negotiations with the insured for a registered right of way over the accessway. A successful negotiation resulted in settlement being agreed, on the basis that the solicitors, acting on behalf of the access way’s owner, would finalise a Deed of Servitude to give the insured a right to use the accessway. In accordance with the terms of the policy, First Title also met the legal and expert costs incurred in connection with this matter.
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www.firsttitle.eu
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.