What is Title Indemnity Insurance?

Title indemnity insurance (TII) is a type of insurance which can be put in place in order to protect the owner of a property with a legal defect in their title against potential financial loss. TII is an alternative to remedying the defect and, in appropriate circumstances (usually where there is a low risk of actual loss) it can be the most pragmatic, cost-effective and time-efficient way of dealing with the issue.

While TII can be put in place at any time, most commonly it is obtained as part of a conveyancing transaction. The defect in title will usually be raised by the purchaser's solicitor as part of the due diligence process and a TII will be offered by the seller to avoid the transaction being prejudiced or delayed.

How much does Title Indemnity Insurance cost and who pays?

TII policies attract a one-off premium calculated according to the value of the property and the perceived risk. Usually premiums cost in the hundreds of pounds and are most commonly covered by the seller. A TII policy protects the property owner and their successors in title as well as any mortgage provider with an interest in the property.

What does Title Indemnity Insurance cover?

TII can provide cover for a wide range of defects in title. Some common examples are:

• Absence of Planning Permission, Listed Building Consent, Building Warrant or Completion Certificate in respect of the construction, alteration or extension of a property. Here, TII is an alternative to obtaining retrospective consent and would provide financial compensation should the local authority take enforcement action in the future (i.e. require the owner to return the property to its original condition or carry out further works). Depending on the nature of the unauthorised works and when they were carried out, the risk of enforcement action being taken may be remote and TII could provide sufficient comfort to a purchaser.
• Lack of formal rights of access to a property over land that is owned by a third party. If the owner of the property was prevented from taking access, the TII policy would normally cover the cost of obtaining the necessary rights of access, the cost of constructing an alternative access where sufficient rights do exist or the reduction in value of the property as a result of the lack of rights. TII may be appropriate if access has been taken for a number of years or the owner of the land or road over which access is taken is unknown. It is worth noting here that legal "prescriptive" rights of access to a property can be created in Scotland when access has been taken over a specific route as of right, openly, peaceably and without interruption for a period of at least 20 years.
• A title condition has been breached by the owner of a property - for example a "granny flat" has been built in the garden but the title deeds prohibit the erection of anything other than a shed or garage. In this example, a TII claim would be made if a neighbour or other interested party successfully raised an action to enforce the title condition so that the granny flat had to be removed.

Important points to be aware of

TII does not and never will remedy the title defect; instead it provides financial compensation in the event of the defect causing actual loss.

If a potential claimant under the TII policy is notified about the title defect, the policy will likely be invalidated. For example, the owner of a road over which access is taken should not be approached with a view to formalising access rights nor should it be mentioned to them that the current servitude rights are not sufficient. Where there have been unauthorised alterations, there should be no application for retrospective consent or contact with the local authority in relation to the issue. If there are plans to develop the property and the local authority is 'invited' into the property to inspect the new work, this is likely to constitute notification.

TII covers a property in its current guise and for its current use only. However, it might be possible to put in place further TII at a later date if the status quo changes. For example, if the property is to be developed with the result that use of an access road over which there are no formal rights of access will be increased, an amendment to the existing TII may be required and a further premium paid.

If you think there may be a requirement for TII in connection with an issue which affects your property, you should contact your solicitor at the earliest opportunity and in any event before making an approach to a third party or even discussing the problem with other people.

For more information, speak to one of our rural lawyers, or get in touch with your usual Brodies contact.