Here, Kirstin Nee of DUAL Asset Underwriting explains what legal indemnity insurance is and why it can play a key role in facilitating a property purchase and reducing the purchaser’s risk.
Property Law and Land Registration, in principle, is designed to make the selling and buying of land, as easy as possible. It undoubtedly does this, for the most part. Unfortunately, the reality of conveyancing is that there are many pitfalls and defects that can make what appears to be an easy deal, a nightmare!
Whether you are a multimillion pound developer or buying your first ever flat, title defects can give the purchaser and their professional advisers sleepless nights. There are numerous defects, which can affect a purchase and some which can stop the transaction altogether. One of the most common and problematic is the ransom strip.
What on earth are these you ask? Put very simply, these are small areas or slithers of ground, which lie outwith the title, but are integral to the enjoyment of a property. Most commonly, these relate to access to the property. These are usually in someone else’s title and that person may think “bingo! I can make some money here!” They can essentially hold the owner of the property who requires access to the land to ransom, because they do not have documented rights to use the route (and this can include for services and drainage utilities). Ransom strips can be particularly difficult to spot with rural property and estates due to old titles and maps.
In recent years, there have been some highly publicised cases where ransom strips have caused not only costly financial issues, but have been dragged out for significant lengths of time to everyone’s dismay. This was the case with a Southend residential development, in which the purchasers of the properties were due to benefit from valuable underground parking, accessed from a side road. The development completed and the plots were ready to sell when a neighbouring freeholder claimed that the access to the parking area crossed his land and no legal easement existed to allow the plot purchasers to use it.
The objector produced a deed showing that a strip 6” wide that crossed the garage area actually belonged to him. However he’d be prepared to grant an easement allowing access for a 6-figure sum!
Problems can arise due to a number of reasons including:
- Mapping errors in earlier conveyances;
- The extent of a road, which has been publicly adopted, not quite meeting the land that you have title to; or
- More sinisterly, on purpose!
Whatever the reason, they are problematic and need to be dealt with. They are usually identified by lawyers or surveyors during the course of their due diligence/assessment and they should then be bought to the attention of the purchaser who should also be given a summary of the options for dealing with the issue.
These are usually:
- Take a view and do nothing, it may be unlikely to ever rear its head (this approach is unlikely to satisfy anyone lending or financing a mortgage on a transaction);
- Find out who the owner is and approach them, to try and correct the issue; or
- Obtain legal indemnity insurance. That way, should a claim ever happen, the insurers take care of it when it occurs, by either correcting the position or providing cover for any actual loss the property owner suffers, due to the ransom strip. Insurers will also usually pay any legal costs incurred.
Providers of Legal Indemnity Insurance have traditionally only offered access to one insurer’s product, but the UK’s largest legal indemnity provider, DUAL Asset Underwriting, provides access to a choice of legal indemnity quotes for residential and commercial property transactions via their comparison site, ‘My Legal Indemnity shop’.
The site is designed specifically to meet the Financial Conduct Authorities Treating Customers Fairly initiative by providing consumers and their advisers with a transparent way of comparing similar products at different price points.
The role of a surveyor is to help their client complete, as far as possible, a risk free property acquisition, whether the client is purchasing a home or a multi-million pound office block. Legal Indemnity Insurance can play an important part in achieving that objective and is certainly something that surveying firms and agents should be aware of, even if they don’t actively recommend it to clients.
If you would like to explore the viability of offering Legal Indemnity Insurance to your clients, please contact your Howden account manager.