AUTUMN 2016 ISSUE
FIRST COMMENT IN THIS ISSUE: • TITLE INSURANCE: A SOLICITOR’S PERSPECTIVE • CLAIMS CASE STUDY - PROPERTY OWNERS PROTECTION POLICY (POPP) • CLAIMS CASE STUDY - SERVITUDE - RIGHT TO PARK
Leading Title Insurance
Welcome to the autumn edition of our newsletter, we trust that you have had a good summer. In this issue, we have submissions from Stewart Brymer – who considers the lawyers view in relation to a recent case study as well as an article from the newest member of our underwriting team in Glasgow, Commercial underwriter Nicola McCluskie - who lends her perspective on title insurance having moved into insurance from private practice. We have had feedback from some users who are finding it difficult to download the newsletters in .pdf format. If you are having trouble, please follow the instructions below. Step 1: Click the ‘Share’ button beneath the toolbar. Step 2: This will reveal several options. Click ‘Download’ on the far right. Step 3: Dependant on your browser and its settings, the newsletter will automatically save in .pdf format to your pre-defined location. If you are still experiencing difficulties contact email@example.com
A Solicitorâ€™s Perspective By Nicola McCluskie Commercial Underwriter First Title Insurance
Having worked in private practice for over seven years prior to joining First Title earlier this year, I considered myself fairly familiar with the nuances (and niceties) of title indemnity insurance. I was experienced in uncovering title defects when reviewing title deeds on behalf of funders and I had on various occasions recommended that a title indemnity insurance policy was obtained to â€œplug the gap.â€? As a result of working mainly on renewables projects (including solar, hydro and onshore wind), I was well versed in reviewing Sasine title deeds and finding that these contained less than adequate property title descriptions and I lost count of the number of times no plans were attached to deeds for large estates! Title insurance was therefore very much on my radar, however, until I started working at First Title, I did not appreciate the variety of cover which can be offered and the extent to which title insurance can assist with a wide range of conveyancing transactions. I also did not fully appreciate the extent of the underwriting process and that information is key. I, therefore, thought it would be helpful to set out my experiences of title insurance in action so far...
What does First Title Offer? At First Title we cater for a large range of residential and commercial risks. Our Glasgow office in particular covers Scotland and Northern Ireland with our London office covering England, Wales and Central Europe.
(a) Residential cases For straightforward residential risks in Scotland and Northern Ireland we provide clients with an application form which contains certain assumptions based on the purported risk. Provided that all of these assumptions can be met, cover is offered and a draft policy issued immediately. The purchase price is taken into account when calculating the proposed premium. This offers a quick and efficient “plug” for conveyancers who are under pressure to deliver to tight deadlines, ensuring that clients can take entry to their new homes as planned. Common enquiries we receive relate to (amongst others) (i) garden ground not falling within an owner’s legal title, (ii) a lack of planning and building documentation and (iii) a transfer at undervalue. We also consider more bespoke residential cases. Within these risks, there are sometimes limitations which we highlight to clients when receiving a title insurance enquiry, for example, with a current transfer at undervalue, cover can only be offered to the lender.
(b) Commercial cases Our commercial risks are wide and are considered on a case by case basis. Cover can be offered for numerous risk including minerals, access,
dispossession (adverse possession in the case of Northern Ireland), title conditions (restrictive covenants in the case of Northern Ireland) and services. With commercial cases, it is paramount that we receive as much information as possible in relation to the purported risk and that it is clear, the basis on which the policy is to be issued. There is a clear distinction in these cases between cover offered on a continued use or pre / post planning basis. We must be made aware before making an offer of cover as to whether the property is being used for the same purpose following completion of the sale / refinancing or whether the intention is to develop the land and, if so, for what purpose(s). This is relevant in terms of us assessing (a) the risk (for example, in the case of an access risk, continued use of the property and associated access would suggest there will be no intensification of use) and (b) the premium (this is based on the current value / purchase price or developed value). Details of the relevant planning permission are also required in order to establish what is proposed and if any objections have been received.
What is not covered? A common misconception is that cover may be provided for something such as building / structural defects or lack of collateral warranties. However, First Title’s focus is mainly on risks relating specifically to a
defect in the property title and not a physical defect which could be resolved by obtaining some form of building insurance. We are also still at the behest of the Land Registration etc. (Scotland) Act 2012 in Scotland to some degree as clients are concerned about the registration process, particularly in the case of applications for a non-domino dispositions. We cannot, however, insure against the registration process so we can often only provide cover in these situations where an application has been submitted and registered by the Keeper or where no application for registration is to be made.
Underwriting process One thing which has struck me during my time at First Title is that I may have been of more assistance to the insurers when submitting my initial query â€“ I perhaps didnâ€™t acknowledge the range of information the insurers would require in order to determine if cover could be offered. Examples include (i) in the case of minerals cover for an onshore wind development, how deep the turbine foundations are and (ii) in the case of title conditions cover for an industrial development, if any neighbouring properties have been developed in a similar manner. We also carry out our own research / investigations by accessing the planning portal of the relevant local authority and reviewing objection letters / applications etc. (this is particularly relevant for the likes of minerals and
access cover) and checking in some cases the title deeds for neighbouring properties (this is particularly relevant for cover sought in relation to title conditions). Providing us with as much information as possible together with an indication of completion timescales also helps us provide clients with a more comprehensive response to queries received. We appreciate that the nature of transactions change and evolve over time so we are continually reviewing our risk package / offering to clients to ensure it is consistent with the market place. We, therefore, encourage solicitors and brokers to approach us with any new risks so that we can consider alongside our current underwriting requirements.
Summary I consider title indemnity insurance to be an incredibly useful device in assisting solicitors with completing transactions while providing their clients with a cost efficient and pragmatic solution. We are always happy to consider new enquiries and bespoke risks so please do not hesitate to contact us for an informal discussion outlining the risk(s) for which you are seeking cover if you consider that a title policy might assist you and your clients.
Claims Case Study:
Property owners protection policy (POPP) Professor Stewart Brymer Brymer Legal Limited
Background DevCo was acquiring, by way of share acquisition, 50 properties across the UK with various business and industrial uses. 20 of the properties were in Scotland. Timing and costs were critical factors as there was some doubt about the long-term solvency of the selling company. Bank debt was being provided to DevCo to fund part of the acquisition.
Risk The properties were formerly distressed assets acquired by the seller some 12 months previously. The underlying material required to answer relevant due diligence enquiries was weak and little, or no, warranties existed. Due to time and cost limitations on the deal, DevCo’s solicitors were not in a position to undertake full due diligence. The risk for DevCo was the limited reliance on the seller’s information and weak underlying ancillary material. A number of known risk issues were identified on a number of properties and DevCo sought individual title indemnity policies for these risks.
Solution Following the assessment of the risk profile, the client was offered a Property Owner’s Protection Policy (sometimes known as a “title guarantee wrapper”) to fill those information gaps, bolster the lack of good due diligence material and to cover a percentage of the properties where full title reports had not been prepared. 6
The Property Owners Protection policy (POPP) coverage supplied by First Title: • Reduced the level of due diligence on DevCo’s solicitors with First Title undertaking a sampling exercise of the titles. • Offered cover for unknown title defects across all assets in the portfolio which was being acquired. • Provided protection for DevCo and its lender • Extended coverage to include lack of local authority searches. As mentioned above, First Title also provided individual known risk policies for a number of properties across the portfolio, fulfilling DevCo’s requirement for additional property specific policies.
Observations Despite plans to the contrary, it is often not possible to complete a full examination of title and other due diligence matters in the time available. Given the importance of good risk management and the obligations which a solicitor has to his / her client – be it a purchaser and/or a lender – it is often prudent to consider the benefits of an appropriate title indemnity policy or policies. If considered as an option at the outset, such policies can greatly assist the smooth running of transactions. Gone are the days when Title Insurance was regarded as something used only as a last resort or if there were defects or gaps in a title and other documentation. It is now an integral part of risk assessment and acquisition strategy which, if properly and timeously used, can have considerable benefits. Put simply; it is an option which should be considered.
Claims Case Study:
Servitude: Right to park Becky Morgan Claims Team Manager First Title Insurance
What was the background to the claim? The Insured party had purchased a residential flat with which she had been allocated a car parking space -although details of the actual space had not been included on the Land Certificate. Once the Insured had moved in and started to utilise the parking space, she received a letter from the original developers of the property asking her to remove her car from the parking space and stating that no such space was allocated to her flat. The development had been acquired from a mortgagee-in-possession. However the mortgagee had neglected to re-possess the parking space, which remained vested in the name of the original developer. The previous owners of the flat had used the parking space for two and a half years without any objection. The space was not registered to a third party and there were no alternative spaces available from the new developer.
The challenge Aside from the obvious restriction in use, the owner of the flat was also faced with a diminution in value of her property.
The solution Having purchased a known risk policy, the insured subsequently raised a claim. Initially, First Title assisted the insured in corresponding with the developer to determine whether any alternative parking spaces were available. They responded indicating that a space could be purchased. First Title arranged for a surveyor to establish diminution in value to the flat without the benefit of a car parking space. The surveyors report indicated that the diminution in value would be £10,000. The Insured’s lawyer advised that the Insured had located a suitable alternative parking space at a cost of £12,000. First Title agreed to meet this cost, as well as paying the Insured’s legal costs.
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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.