Title indemnity insurance: what is it?

When selling land for development a prospective buyer, developer or lender will seek to establish that there are no defects in title that might adversely affect the intended use, enjoyment and value of the land.

Where a title defect is identified and cannot be remedied, a title indemnity policy may be available in respect of the defect, providing cover from loss which might result from the defect. It does not remedy the title defect but will provide some comfort around the risks.

It is worth investigating whether title indemnity insurance is suitable and available as soon as possible after identifying a defect, so as to avoid any delay to a transaction.

Here are ten frequently asked questions around title indemnity insurance:

1. What defects can be covered by title indemnity insurance?

The types of defects where insurance might be available is wide ranging, and includes risks around access issues, adverse possession, chancel repair, mining rights, missing title documents, and restrictive covenants. This list is not exhaustive, and insurers will often consider cover on a case-by-case basis.

2. What is the scope of cover of a title indemnity insurance policy?

This will depend on the individual policy, but it is common to see cover for;

• the cost of legal proceedings,
• the costs of damages and compensation awards,
• the costs associated with complying with an injunction,
• professional costs,
• the reduction in market value of the land with and without the defect, and
• construction work costs.

A policy may also list a number of specific exclusions from cover, such as fraudulent claims, and will be restricted to the limit of indemnity and any excesses.

3. Who will the policy cover?

Most policies will cover you as landowner as well as successors in title, tenants and landowners.

If your land is intended for development, then you may wish to also include utility service providers / statutory undertakers and highways authorities as insured parties specifically, depending on the type of risk being covered.

4. What information will I be asked to provide?

In order to assess the risk, and depending on the nature of the risk, it is likely an insurer will ask to be provided with title details, the current use of the land and its intended use, development layout plans where available, and certain search results.

Where insurance is sought on a post-planning basis, the insurer may also ask for copies of relevant planning documents, including the planning officer’s report and details of third-party objections.

The insurer is likely to make a number of assumptions when preparing a draft policy, and these will need to be checked carefully and confirmed.

5. What does “insured use” mean?

The policy will often cover a specific insured use, such as development pursuant to a particular planning permission. This needs careful consideration before agreeing the policy, particularly if variation is possible. If the policy is put on risk and then changes to the insured use are needed, then it is likely an endorsement to the policy would be necessary in order to avoid the risk of invalidating it.

6. What should the limit of indemnity of a title indemnity insurance policy be?

Although it might seem improbable that a claim could be made that entirely wipes out the gross development value (‘GDV’) of the land, the limit of indemnity required by the insurer is usually the GDV. Some policies will also allow for an increase in the limit of indemnity such as a compound 10% increase per year.

7. How much will a title indemnity insurance policy cost?

Depending on the nature of the risk, the gross development value of the land, and whether cover is sought on a pre-planning or post-planning basis, insurance can be expensive.

The premium payable is usually a one-off payment (as opposed to a recurring monthly or annual payment) and will be subject to insurance premium tax (currently 12%).

8. How long will the policy last?

The period of cover will be set out on the policy and it is common to see cover which lasts forever.

9. When is the best time to put an indemnity policy on risk?

There are a number of factors to consider in terms of timing and this should be considered with your legal adviser. Factors include whether cover is sought before or after a planning decision for development, the structure of the transaction, and timing for exchange and completion. A developer may also have their own requirements in terms of what the policy should cover and their own preferred brokers.

10. Who can I tell about the title indemnity policy?

The policy is likely to provide that you must not disclose its existence to anyone, other than genuine prospective purchases, lenders and legal advisers without the insurer’s consent. It will be important to follow this to avoid inadvertently voiding the policy.