Winter 2019/20 ISSUE
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FIRST COMMENT IN THIS ISSUE: • MAINTENANCE OF TENEMENT PROPERTIES • MAKING CHANGES TO YOUR POLICY: POINTS TO CONSIDER • FIRST TITLE’S ONLINE PLATFORM • CLAIM CASE STUDY: TITLE ISSUE
Leading Title Insurance
Welcome to the Winter edition of our newsletter for 2019. In this issue Professor Stewart Brymer looks at recommendations to improve the fabric of Scotland’s tenement properties. Our underwriter contribution for this quarter comes from Liana di Ciacca. She outlines how First Title offers flexibility to accommodate policy changes when a client’s circumstances change.
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FIRST COMMENT
Maintenance of Tenement Properties by Professor Stewart Brymer Brymer Legal Ltd
The law of the tenement was developed to regulate the common rights and obligations of owners of tenement properties and was a feature of the Scots common law of Property for hundreds of years. These provisions were, of course, consolidated and enhanced by the Tenements (Scotland)
Act 2004 (‘the 2004 Act’). The purpose of this article is to look at the issue of the maintenance of common parts of the tenement (otherwise referred to as Tenement Scheme Property) with a view to identifying if there is scope for further enhancement of the existing legislative and practical framework.
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A ‘tenement’ is defined in Section 26(1) of the 2004 Act as follows: “In this Act, ‘tenement’ means a building or a part of a building which comprises two related flats which, or more than two such flats at least two of which: a)
are, or are designed to be, in separate ownership; and
b) are divided from each other horizontally, and, except where the context otherwise requires, includes the solum and any other land pertaining to that building or, as the case may be, part of the building; and the expression “tenement building” shall be construed accordingly.”
Background The definition above acknowledges the essential makeup of a tenement building and the degree of reliance which individual parts of a tenement have to each other. That reliance is best described as being the common interest which all owners of properties in a tenement have both with regard to common parts such as the roof and main walls etc. but also to each other. Put simply, all owners have a shared or vested interest in the overall maintenance, repair and, if necessary, renewal of the tenement as a whole. Unfortunately, serious issues can arise in practice if wants of repair are not identified and dealt with at an early enough stage. One often finds a reluctance to engage with other owners over maintenance of the roof and related rain water goods for example. This can be the result of a fear of the cost of such repair work but, regrettably, it is often due to individual owners tending to focus on the airspace of their flat without having regard to the importance of common parts being maintained on a regular basis for the benefit of all properties. Unfortunately, we are all too well aware of the tragic consequences that falling masonry can have. In Edinburgh alone, these increased from 53 instances in 2014 to 179 in 2019. This will only get worse if action is not taken.
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The 2004 Act provided for the Tenement Management Scheme (Section 4 and Schedule 1) (‘the TMS’) in an attempt to ensure that there was a default scheme for the maintenance of tenement properties. Unfortunately, the TMS requires consensus for its adoption. It was not possible for it to be mandatory given the requirement that all legislation of the Scottish Parliament be ECHR compliant. It is a good scheme (being an upgraded version of the previous law of the tenement in many respects) which, unfortunately, has not been used as widely as might have been hoped. As a result, there remain many instances where owners are uncertain as to what can be done for common repairs in tenement properties which, in turn, leads to repairs not being undertaken and the problem gets worse and costs more to rectify at a later stage. It also means that the overriding wish of Government to protect and improve the quality of Scotland’s housing stock is seriously prejudiced - this having been the aim of the Housing Improvement Task Force (‘HITF’). The HITF was established by the then Scottish Executive and was charged with carrying out a thorough review of housing policy in relation to the condition of the private sector in Scotland. Its first stage report published in March 2002, “Issues in Improving Quality in Private Houses: The first report of the Housing Improvement Task Force”, set out the key issues and challenges in improving the condition of Scotland’s private sector houses and modernising the buying and selling process. One of the subsequent outcomes of this initiative was the Home Report and Property Questionnaire which are now in use today. Although criticised heavily by the legal profession when introduced, they have, without doubt, had a positive effect on the home moving process in Scotland. The most recent housing condition survey in Scotland showed that 68% of all dwellings have some degree of disrepair. It was reported that disrepair to critical elements stood at 50%, while 28% of dwellings had some instance of urgent disrepair. Nearly a fifth of housing is pre-1919 and apparently 68% of these have disrepair to critical elements. This indicates a serious problem. The major issues around certain types of cladding on buildings is also a major concern and, in that regard, we would do well to remember that not all tenements (as defined) are of the Victorian type which are commonly found throughout Scotland.
FIRST COMMENT Thankfully MSPs of all parties along with key stakeholders formed a Working Group on the Maintenance of Tenement Scheme Property to look into this problem. The Working Group reported earlier this year and its recommendations are being debated.
Key recommendations and a possible way forward
the Home Report though it would be linked electronically by way of a Unique Property Reference Number (UPRN) for reference purposes. Following approval, all home owners would receive a copy of the Report in either hard or electronic format. It is suggested that the Report be updated every five years.
The following is a summary of the recommendations of the Working Group:
1. Tenement Inspection
It is recommended that the common parts of all tenements be inspected every five years and a report prepared that will be publicly available to existing or prospective owners and tenants, neighbours and policy makers. This will allow them to see what condition each building is in; how much expenditure is required to bring it up to standard if it is defective; and what needs to be done by way of ongoing maintenance. This would also supplement the information provided in Home Reports with information vital to a prospective purchaser and would provide a warning to prospective tenants of property in a potentially sub-standard building. It is hoped that this will encourage more proactive maintenance.
2. Establishing compulsory owners’ associations
Inspections should be undertaken by qualified building professionals. The form and content of Inspection Reports should be set out in accordance with recognised standards (most likely BS7913:2013), with further investigations and works prescribed under specified categories ranging from no noticeable defects to immediate repair required. Once a draft Report is to hand, it will require to be reviewed and agreed by the tenement community then agreed with the inspector. The Report will cover the inspection of the tenement and not costings for any necessary works. It is designed to be a ‘living’ document which will be held centrally online – perhaps in ScotLIS (see below) – and be accessible by the public for free. The Report will be separate from
It will be interesting to see how this proposal turns out. The reason for a degree of cynicism is that it can be challenging to deal with such matters and there could be too much information available which might have the opposite effect and actually result in further inaction. The focus should be on the quality of the information which is available, however. Could certain tenements be blighted? What about absentee landlords / buy to let properties etc.? I suspect that the answer to these concerns would be that progress is essential and that the current position is not sustainable and that reform is required. These matters are in the hands of the tenement owners to rectify the position. The proposed new system, when first introduced, may result in people not being able to afford to contribute to all of the works required. That is no different from now, however, and it may help if there was a transition period to allow people to bring their tenements up to scratch. Once again, this would require to be monitored.
It is recommended that compulsory owners’ associations be established. The informal owners’ associations that exist at present in many tenements do not usually have any legal personality. This means that they cannot legally contract as a body in a binding manner. While useful in encouraging communication, they are necessarily limited in their ability to act. Such associations need to be made corporate bodies to do this. The Working Group considered adopting the Development Management Scheme as introduced by the Title Conditions (Scotland) Act 2003. This option was not recommended for reasons of cost. Accordingly, it is recommended that a revised version of the TMS (B) as described in the Scottish Law Commission Report (Scot Law Com No 162,1998) would provide a suitable model 5
to establish an owners’ association as a corporate body. It is suggested that legislation could achieve this without the need for conveyancing. This may, however, require UK legislation as business associations is an area of law reserved to Westminster. A less radical solution might be for the current TMS to be amended to allow the introduction of an owners’ association by a majority decision of owners.
will consult on this. Unlike other retrospective measures this would seem to have the potential to benefit all. The foregoing recommendations will also require amendments to the TMS and other legislation principally with regard to energy efficiency; the duty to maintain property; shares by rateable value and feu duty as specified in titles; debt recovery; and majority decision making.
3. Establishment of Sinking Funds
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A Sinking Fund is generally set up to ensure regular payments contribute to a reserve fund to deal with potential future major expenditure. At present, the set-up of such funds usually requires consensus as to the proposal among all owners. As a result, they are uncommon. The Working Group see this recommendation as the necessary adjunct of the establishment of formal owners’ associations. It is suggested that the model used by Safe Deposits Scotland and Credit Unions might be an appropriate way in which to ensure that money is held securely for the benefit of all owners. The Fund would comprise the same number of shares as flats in the tenement and would be managed by the same rules that apply to commissioning repairs and maintenance of the tenement. It is proposed that Local Authorities would have powers to require the owners of flats in individual tenements to subscribe a higher amount into a Sinking Fund. The value of shares in the Sinking Fund would be apportioned on the occasion of a sale of a property. In essence, the Sinking Fund is seen as being a commitment rather than a debt designed to be securely managed to protect owners’ funds. Details of the Fund would be accessible and visible to prospective purchasers. Once again, this could be done via ScotLIS which has proved to be successful with solicitors, surveyors and the general public as it is easily accessible. This would meet the Government’s aim to have an authoritative database of all information relative to land and property in Scotland. In England and Wales, the advisory group led by Lord Best is proposing that where leases do not contain Sinking or Reserve Funds that they have them imposed - and it may be that government
Conclusion The coming into force of the 2004 Act was never going to be the final position on the law as it applies to tenement properties. While each recommendation of the Working Group has its own benefits, the required transformative change to improve the fabric of Scotland’s tenement properties can only arise through the implementation of all three. In essence, this is a positive set of recommendations. Of course, there will be a period during which current practices will require change. That is to be expected. Scotland has been rightly proud of its long tradition of tenement living but there can be no doubt that positive action is now required. All one needs to do is to take a walk round the centre of a city to see the poor state of repair of some (once proud) tenement properties. Visible problems include falling masonry as aforesaid; trees and other vegetation growing out of guttering; leaking rainwater goods; and dampness and rot problems. Something has to be done and, in the absence of agreement among owners and the availability of funding for the works, the situation can only get worse. There is no doubt that this is as much a social question as a legal one. Too many flat owners are unwilling to engage in maintenance and so look after their own self-interest until something happens to their property, e.g. water ingress through roof leading to the collapse of ceilings in top floor properties and, in turn, water damage to lower floors. When such damage happens, everyone tends to look around for someone to blame. In the case of tenement properties, this is often themselves in part. As a result, these desirable reforms will require a change in attitudes as much as legislation.
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Making changes to your policy: Points to consider by Liana Di Ciacca Senior Underwriter & Solicitor
In the majority of cases, First Title’s policies are designed to last in perpetuity and will automatically pass to successors in title. Therefore, in theory, a policy could continue to run continuously without any requirement to extend or update the coverage. However, it is inevitable that circumstances change over time: property prices fluctuate depending on market conditions and sites are sold on and developed. As an insurer, First Title needs to be flexible to accommodate these changes and our underwriters can discuss the policy wording with you so you can ensure your client’s needs are met and they continue to be fully covered under the policy.
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FIRST COMMENT
A common amendment that we are asked to make to existing policies, is an increase in the policy amount. This could be as a result of a natural change in property prices or because the property has been refurbished or the site is going to be developed. Alternatively, if you suspect that the property value may increase over time, we are able to include additional cover for inflation. For commercial policies, this can be added on when the policy is initially being issued or at a later date. Our residential policies include this as standard and cover inflation up to 200% of the policy amount. As the losses covered by our policies are linked to diminution in value of the land, it is important to ensure that your client is fully protected and isn’t under-insured in the event of a claim. Sometimes when properties are sold or re-financed, additional risks may affect the title which didn’t exist or were not applicable at the original policy date. Alternatively, additional risks are sometimes identified because title issues can be subjective and so a solicitor, looking at the same title in future, might have a different view on the marketability of the title or may be more concerned about certain elements of the title and how they have developed over time. In this case, First Title can provide cover for additional risks by way of an endorsement to the original policy. This would be subject to further underwriting based on First Title’s underwriting criteria at the time of the request. Another important consideration to bear in mind is the insured use covered by the policy. If a site is being developed or works are being carried out, you will need to ensure that the insured use on the face of the policy correlates with the most recent plans. For example, if the insured use under an existing policy covers the continued use of the land as an existing residential dwelling house, then this is designed to cover the land as developed at the policy date and will not extend to any future developments. If an incoming purchaser intends to submit planning permission for a different use or
a development, then the policy would need to be updated to reflect the proposals. This would usually come hand in hand with an increase in the policy amount also. An underwriter will be able to reassess the risk in light of the new development / change of use and provide feedback on whether cover will be available and at what premium. Although the insured party narrated on the policy will generally be the owner of the land at the policy date, the majority of our policies pass to successors in title, including future purchasers, heritable creditors and lessees. Therefore, in order to avoid delays, it is important to remember when requesting an amendment to a policy that other parties may also benefit from the cover and so they must consent to the proposed changes or you need to be authorised by all relevant parties to effect the endorsement. An endorsement can also be added on to an existing policy if an insured party has identified additional losses that they would like covered under the policy. This may be relevant if a lease is put in place in respect of the land and the tenant has concerns about their specific losses in the event of a claim. Their interest may not necessarily be linked to the market value of the land and they may instead be more interested in coverage for loss of profits or rental liability during a period of interruption, for example. The original policy may have been put in place with the landlord’s losses in mind and so the policy may have to be re-evaluated to consider how it might offer protection to a tenant. When issuing a policy, First Title’s underwriters will always try their best to ensure that you and your client get the best value out of your policy and that the coverage will stand the test of time. However, if circumstances change, which they often do, First Title will be happy to confirm whether the policy remains in force or whether changes will be necessary to ensure seamless cover.
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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.
Taking the headache out of property transactions for 35 years
Call: +44(0)141 413 8800 Email: scotinfo@firsttitle.co.uk Visit: 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: ECA Court, 24-26 South Park, Sevenoaks, Kent, TN13 1DU.
Leading Title Insurance
FIRST COMMENT
Claim Case Study:
Title issue Background
Solution
The developers of an old football pitch in Scotland had a problem. Although they had purchased the land from the Trustees of the former football club who had used the land since the early twentieth century, they could not prove the ownership of some of the land.
First Title immediately instructed lawyers to deal with the solicitors for the Trustees on behalf of all the residents in order to resolve the dispute as quickly as possible.
The developers wanted to build 23 new residential properties on the land. They were advised to obtain a title insurance policy from First Title. Policies were issued not only for the developers themselves but also for each of the 23 new properties built on the land. This meant that each individual who purchased one of the properties bought their house secure in the knowledge that the insurance policy would cover them against any future claim made by someone claiming actual ownership of the land.
Challenge The development was completed and all the houses were sold. Some three years later a letter was sent from a solicitor acting for the Trustees of an estate to all 23 owners of these properties and the original developer claiming that the Trustees were the true owners of the land.
A quick settlement was reached with the Trustees and the necessary legal documentation was completed to conclude the matter. First Title’s policy covered the settlement of this claim against the actual loss and damage incurred because the Trustees were able to prove ownership of this land that had previously been in the football club’s possession for a very long time. In addition to this, the policy covered the legal expenses and surveyor’s costs that were necessary to resolve the matter. The residents of the development were informed that First Title had resolved the matter and that the dispute had been successfully concluded. They were happy in the knowledge that the claim had been finalised without their involvement and that they were spared the stress and expense that often accompanies these circumstances. They were able to sit back and enjoy their homes without the threat of someone else claiming ownership of their land.
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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.
