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Title indemnity insurance – paying for problems to go away

The first focus in any transaction is for the matter to be completed correctly whilst minimising any risk.  A buyer wants to receive good title and the seller wants the money with no outstanding liability for problems.

Problems do arise however.  These can vary from a defective title with missing or badly drafted rights to unauthorised alterations without planning or building consent.  Parties are increasingly turning to title indemnity insurance as a means of managing this risk.  This has proven useful for minor issues but recent cases are being picked up by such insurers to illustrate the extent to which insurance is actually available.

Sale at undervalue

In the case of Carnbroe Estates (2017 CSOH 8)a party sold a property at undervalue and the grantors creditor sought reduction of the deed.  The court found the transfer to be a gratuitous alienation designed to avoid the creditors and they were successful.

Surprisingly however title indemnity insurers would cover this by way of a policy – albeit not for the party acquiring but for any lender funding the purchase and for any future owners.  Such a provider would require to check the financial history of the seller but their position need not be particularly rosy.  Assuming they qualify the premium in such a case could be as little as £30.

Fraud and Forgery

Insurance cover may therefore be extended from the sphere of simple title or planning issues to protect a lender or subsequent buyer from the problem status of the seller.  Beyond that however insurers are providing cover for much more serious issues.

The cases of Khan v Siddique (2018 CSOH 41)and Chalmers v Chalmers(2015 SLT 793)contain complicated stories of fraud and forgery, ultimately resulting in actions to reduce the deeds involved for those reasons.

Again however, and despite the fact that most parties would see even a suspicion of such matters as a reason not to proceed, insurers have confirmed their ability to provide cover in transactions where it is suspected that such criminal actions may have occurred in the past.  The insurers give much weight to their assumptions and disregards as required prior to cover being given but, assuming they can be met, cover can be obtained in such cases for as little as £70 for properties with a value of up to £1M.

Although insurance may of course not be a remedy in such extreme cases the above willingness of the industry to provide cover does show the extent to which these policies may provide a viable and cheaper alternative in managing risk for complicated cases.

We are not connected to any particular insurance provider and can explore many such options in relation to difficult transactions.  If you would like some further advice on this subject please contact our Associate Director John Wellburn on 01383 745779 or jw@businesslaw.co.uk.

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