Summer '19 Scotland

Summer 2019 ISSUE

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FIRST COMMENT IN THIS ISSUE: • IS THE HOME MOVING PROCESS BROKEN? • CLAIMS: POINTS TO CONSIDER • FAST TITLE: NEW ONLINE PLATFORM

Leading Title Insurance

Welcome to the Summer edition of our newsletter for 2019.

In this issue Professor Stewart Brymer discusses what changes, if any, need to be made in order to improve the home moving process.

Our underwriter contribution for this quarter comes from Nicola McCluskie, who summarises the main points that your clients should be made aware of when taking out a title indemnity policy.

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FIRST COMMENT

Is the home moving process broken?

by Professor Stewart Brymer Brymer Legal Ltd The Prime Minister recently stated that: “Our broken housing market is one of the biggest barriers to progress in Britain today.” Now there may be many reasons why our housing market is deemed to be ‘broken’ if indeed it is and it very much depends on the perspective one has when viewing the housing market. On the one hand, it clearly is not because it is working but, on the other, there are a number of pieces in the process which are not operating at optimum functionality. The purpose of this article is to assess where things currently stand and what might be done to improve matters.

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The contractual relationship A binding contract between buyer and seller underpins the whole process. A contract for the sale and purchase of residential property is largely the same as it always has been – apart from the onus now being much more on the purchaser with regard to due diligence. As regards the sale itself, the choice is between a private contract (or missives in Scotland) or sale by public auction (historically known as Public Roup in Scotland).

Sale by Private Bargain This remains the main way in which the contract for the sale and purchase of residential property is documented following the property in question being exposed for sale by an estate agent or privately by the seller. The introduction of standard clauses and model contracts has greatly helped reduce some, but not all, of the delays in the conveyancing process.

That, of course, can lead to problems as familiarity can lead to carelessness and error. Also, as standard contracts evolve, they generally become longer rather than shorter in length and, unfortunately, tend to be weighted more in favour of the seller. It usually takes time to get to the position of a binding contract - and, of course, during this period, there is no certainty for either the buyer or the seller – thus leading to the possibility of gazumping and gazundering.

There can be a number of reasons for such delays of course. Everything depends on the availability of loan finance and this has been a contributing factor to a lack of confidence in the home moving process generally. In many respects, there has never been a better time to be a cash buyer as a transaction can be completed very quickly in such cases. There has also been something of a sea change in attitudes as far as buyers committing to a contract for the purchase of a property. Arguably this is a societal issue, but the fear of commitment by potential home buyers and their agents has led to a drastic slowdown in the process.

Sale by Public Auction Historically, such sales tended to be used for ‘hard to shift’ properties or in cases where the title and supporting documentation relative thereto was

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perhaps less than comprehensive. Some sellers prefer the certainty which comes from a sale of a property at auction – deposit paid on the hammer coming down and the balance paid 28 days thereafter. Indeed, there are a number of benefits of such sales – assuming that the Conditions of Sale (both General and Special) have been well drafted and are not simply a ‘cut and paste’ from a previous Auction catalogue. There is much to look out for when buying or advising a prospective purchaser at auction – not least the usual requirement that the buyer takes the title as it stands. The main problem is that the Conditions of Sale tend to be very heavily weighted in favour of the seller to the point that they may be unenforceable or amount to an unfair contract term. There is, I suggest, an opportunity for a radical overhaul of these Standard Conditions – perhaps with the introduction of a fair statutory format.

Sales by public auction are popular in many countries around the world where they do not attract the same sort of stigma as has historically been the case in the UK. In Australia, for example, it is common place to see public auctions taking place. The system there is not perfect (few systems are). It seems to work well however perhaps due to vendor disclosure and quicker agreement on contract terms and, consequently, the greater certainty for buyer and seller alike. At this point, it is perhaps worth stating that when looking at other systems, we would do well to remember that we would be hard-pressed to advocate that the systems operating in the UK represent the proverbial gold standard.

What then of the future?

‘Modern’ Auctions We are all accustomed to EBay and it was perhaps only a matter of time before the sale of residential property was promoted through a web-based marketplace.

For example, see www.iamsold.co.uk which offers free online instant valuations of residential property. Under this system, a buyer has a 28 day exclusivity period in which to exchange contracts and 56 days in which to complete the purchase. The extended period is designed to allow buyers time to secure a mortgage offer. It is understood that a reservation fee of between 2.5 and 4% of the Bid Price is paid on conclusion of the auction and, for tax purposes, is regarded as being part

FIRST COMMENT of the purchase price on which stamp duty is paid. The reservation fee is non-refundable if the buyer does not proceed with the purchase. It is of concern however, that the reservation fee is not part of the final selling price. Like all such new digital developments, it will succeed or fail by reference to its reputation online.

Blockchain By changing the way that information is digitally stored and exchanged, blockchain (or distributed ledger) technology will likely alter (or at least have an effect on) the way real property is recorded, transferred, financed and managed globally. Many private blockchains are under development and many commentators constantly describe blockchain as being the solution to all problems, but to fully realise the benefits offered by blockchain technology, collaboration amongst a large number of industry participants is necessary as blockchains, both public and private, have limitations and will face obstacles. Indeed, there has been recent comment about the shortcomings of blockchain. To many, the jury is still out. It is more likely that blockchain technology will help solve parts of the home moving process. Thereafter, the challenge will be in ‘joining the dots’.

Smart Contracts and Title Insurance Although the contract stage follows the marketing of a property, it is also worth considering some developments in how contracts are now formed between buyer and seller. So-called ‘smart’ contracts have been around for some time and are as ‘smart’ as the manner in which they have been prepared.

Such precedent-based contracts are being used much more however and they feature in HMLR’s Digital Street project (see below). No doubt Blockchain (as noted above) will be mooted as a way to develop this further. It is suggested that these contracts will continue to evolve and that title insurance is likely to be increasingly used as part of the ‘market readiness’ of a property’s title and supporting documentation.

ultimately tested. This is a positive longer-term initiative but we should not lose sight of the fact that we need changes to the home moving system now.

Government etc.

Successive governments have wrestled with the thorny issue of improving the home moving process.

In real terms, this has really been no more than change around the edges. The current Westminster Government has rightly prioritised reform and the Home Buying & Selling Group has made a positive start to identifying the structural and other changes which are required in England and Wales. This is commendable. Likewise, the Bank of England is working on a three-year programme to reform the real time gross settlement system (‘RTGS’) which will lead to a change in CHAPS and Faster Payments procedures.

These (and other) prospective changes need to be collated and advanced together as a priority.

Conclusion So, is the home moving process broken? It has to be said that there are many countries whose systems are much worse than in the UK. In my opinion, the system is clearly fractured in a number of places and is being made to work by those who are involved in it. Reform is required. It is suggested that the best way to tackle such reform is on a step-by-step basis rather than trying to solve all the problems at once. We need to learn from the unfortunate Veyo experience. The core issues need to be identified prior to a strategic plan for change being introduced. Some of these are:

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Emotional cost: We have to recognise the emotional cost of the home moving process.

This was ranked recently as more stressful than being made redundant. A drive towards real change needs to be precipitated / driven in part by demonstrating the benefit to consumers / general public as well as to the parties (stakeholders) who will benefit financially.

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Lack of certainty / delays: Ironically with secure digital signatures and standard contracts we have capacity to finalise contracts quicker than before

Digital Street, Prop Tech and all that HMLR’s Digital Street project is now into its third year.

The aim of Digital Street is to foster an environment whereby possible reforms might be challenged and

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yet the underpinning issues of prospective purchasers hanging back to conclude until their own properties are sold or their finance is confirmed continue to thwart the system.

To resolve that challenge, we need to get to the stage of buyers having some form of guaranteed offer of loan or ‘loan certificate’ which enables them to proceed in the market.

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Cyber fraud etc: We need to address better ways to ensure security in the funds transfer process. Despite what may be said publicly, there is a very real problem with fraud in the home moving process. There are, however, a number of initiatives in this regard which will hopefully address some of the issues.

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Registration of Title: it is in the interests of a buyer and a lender for their interests to be ‘on title’ as soon as possible after a transaction is settled. There should be no delay. This is best done by an efficient E-Registration system.

Digital mortgages have been trialled and need to be operating prior to digital transfers taking place. That requires both confidence in the system and the removal of practitioner fear around the digital process to enable them to see change as an opportunity rather than as a threat.

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Risk: there are a number of risk points in the home moving process and these are not confined to the buyer and seller. Conveyancers also need to be able to process transactions in the knowledge that their systems are robust and that there is smooth interaction with the Land Register, HMRC and others in order to achieve a digital exchange of property for title.

This is what is now happening in Australia.

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Attitudes: one of the barriers to real reform is that some of the ‘players’ in the process are actually resistant to change and would prefer to retain the status quo rather than working towards a reformed home moving process.

This requires attitudinal change and perhaps legislation – possibly in the form of mandated reform over a period of time.

If we want to improve the house moving process, ultimately to be an end-to-end digital process, we should act now. Of course, there should not be change for change’s sake. We need to compare and contrast systems and analyse the efficiency gains and to whom they accrue and ensure that everyone is informed and participates. The end result will hopefully be a more transparent and secure system which is better for everyone.

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FIRST COMMENT

Claims: points to consider

by Nicola McCluskie Senior Commercial Underwriter

Where solicitors are obtaining a title indemnity policy on behalf of the insured party, there is often an urgency in agreeing a quote and the terms of a draft policy as a result of tight completion timescales and pressure from other parties to the transaction. Although the nature of the risk being covered by the policy and the extent of the insured use tend to be the areas clients generally focus on, due consideration should also be given as to whether the policy adequately protects the insured party’s interests in the event of a claim and the extent of the losses covered by the policy. The policy is, after all, being obtained in respect of a perceived risk so the notion that a claim might arise is not inconceivable.

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The aim of this article is therefore to provide clients with a helpful summary of the main points to consider in relation to this:

Which losses are relevant?

What options might be available to the insured party?

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As each case turns on its own facts and circumstances, there is no fixed rule regarding how a claim would be dealt with by our claims team. The following steps will, however, generally be involved:

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As with any form of insurance, it is important that the insured party is not underinsured to ensure that the full value of the claim is covered if required. Our Known Risk policies will generally cover a reduction in the market value of the land in the event of a claim so it is crucial that the policy amount is accurate.

If the property is, for example, going to be developed and used as a residential housing site, thought should be given as to whether the policy covers costs that the insured has contracted to expend on construction or demolition works on the land (including the likes of architect’s and surveyor’s fees relating to these works) in the event of a Court Order being made against your client. Alternatively, if the site is to be used for a specific project such as a wind farm development, thought should be given as to coverage available for abortive costs in relation to grid connection and construction works.

Has the insured granted a standard security over the land? If so, the insured party may be liable to pay interest payable on a standard security granted in respect of the land during any period of time in which it is unable to proceed with the proposed development as a result of a Court Order or as a result of a request from First Title to suspend any works pending resolution of the claim.

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The validity of the claim will have to be ascertained, i.e. has there been a challenge by the legal title owner or a third party able to bring the claim?

2. Consideration will be given to finding a resolution to the claim that works for the insured party and First Title which will include, where necessary, whether a defence can be evidenced against the claim.

3. First Title may seek to settle with the claimant and rectify the title issue. An example of this is a servitude being requested from the landowner in the case of an access or services risk.

4. Matters may progress to litigation between the parties, in which case the policy will cover both legal costs in bringing or defending the action and those sums the insured party is liable to pay pursuant to a Court Order or settlement.

Where the claimant’s action is successful, First Title will also provide cover for the loss in the value of the land subject to the sum insured.

5. If settlement with any third party proves fruitless and there is insufficient evidence available to defend a claim then First Title will indemnify the insured for their losses, which could include abortive costs to date, interest on a standard security and the difference in the value of the land with and without the defect.

FIRST COMMENT

What should clients and the insured party be aware of?

Conclusion

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Although the majority of clients will hope that obtaining a title indemnity policy is simply a means of getting a transaction ‘over the line’ and that the insured party never has to rely on the policy, it is important to bear in mind when advising clients on a title insurance policy that a claim may arise.

The policy terms should therefore be reviewed thoroughly to ensure that the policy is fit for purpose should the worst happen.

It is important that solicitors and their clients do not ‘create a claim’ under the policy as this may void the policy. What this means is that the parties should not take any action or inaction which is contrary to the terms on which cover has been offered, e.g. we would not expect a party who has acquired cover for an access risk to subsequently negotiate the terms of a servitude with the legal title owner following issue of the policy or apply to the Registers of Scotland to register a formal servitude against the access without our prior written consent.

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The insured party or its solicitors should notify First Title within 30 days of them becoming aware of a circumstance that could lead to a claim against the policy, e.g. a letter may be received from a third party or a direct approach may be made in relation to the risk.

It is a term of the policy that the parties do not seek to negotiate, agree or settle a claim without First Title’s written consent as this may adversely affect the insured’s coverage under the policy as it could prejudice its or First Title’s position if matters proceed.

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The existence of the policy should only be disclosed to certain parties, details of which are included in our policies. This will include a bona fide purchaser, tenant or lender in most cases.

Policies must not be disclosed to the claimant or third party bringing a claim against the insured.

We are always happy to deal with any queries you have in this regard prior to and after the policy is issued so please do not hesitate to get in touch with us if required.

First Title expands its offering with the introduction of a new online title insurance platform.

First Title has launched its new online platform 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 now available for Scottish residential solicitors.

Why use the Fast Title platform?

Benefits include: • Cover for 25 different known risks.

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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 NOW LIVE

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.

FIRST COMMENT

Product Focus:

Title conditions Background The insured was acquiring land for the purposes of constructing student accommodation for a nearby university. A Feu Disposition contained in the title deeds for the land did, however, include certain restrictions regarding development, namely that (i) each dwelling on the land had to be used as a selfcontained dwelling for the residence of one person or family, and (ii) the land could not be used for commercial purposes. The property was also not to be used so as to cause a nuisance to neighbours.

Challenge The insured’s solicitors were concerned that, notwithstanding the abolition of feudal tenure in Scotland, the relevant title conditions could be enforced by neighbouring proprietors upon development of the land in terms of s52 of the Title Conditions (Scotland) Act 2003.

Having carried out some investigations into the risk, the insured’s solicitors were able to provide First Title with the following information:

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As a result of the manner in which part of the obligation was drafted, the title conditions constituted a positive obligation and would therefore fall away as a result of the abolition of feudal tenure. It was also thought that the title condition only applied to those dwellings on the land at the time the Feu Disposition was granted.

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The dwelling houses on the land thought to potentially have the benefit of the title conditions were not proximate to the proposed development.

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The proposed development did not obstruct any views from the neighbouring properties.

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No car park was being developed in conjunction with the student accommodation so there would be no increase in the volume of traffic going to and from the land upon completion.

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No objections had been received in relation to the planning application for the development.

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No approach had been made to any third party in relation to the known risk.

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A clear Legal Report had been obtained confirming that no notice for the preservation of the relevant title conditions had been registered against the land.

Solution First Title were able to offer a policy in relation to the risk of enforcement of the relevant title condition by a third party as a result of development of the land for student accommodation purposes.

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.

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.