Sometimes, your conveyancer will recommend obtaining defective title indemnity insurance. Property Disputes specialist Oliver Thorp explains when and why.
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What is a defective title?
If a title to property is said to be ‘defective’, it means there’s an irregularity in, or something missing from, the legal title. Such a defect may make the property less attractive to a buyer or deter them altogether. Some defects are relatively minor and can be remedied quickly, while others are more fundamental.
Typical examples of where a title would be defective are where:
- a piece of land appears to form part of the physical property but is not included in the legal title.
- there is no agreement (easement) for any drains, sewers, pipes, or cables linked to the property, that run over or under another property.
- there is no right of way over an access to the property, eg a road, track, or footpath.
- the title to the property is unregistered, and some or all title deeds are lost.
- the title is subject to restrictive covenants which have been, will be, or may be breached.
If a title to property is defective, in certain circumstances the owner may be found liable for compensation or restricted in the way they use the property. Occasionally, it can force the property owner to relinquish title to part or even all of the property.
What is defective title indemnity insurance?
Given time and resources, a defect in title may be capable of remedy. But in most cases, a defect will only come to light during the conveyancing process. This is a time when your sale or purchase is very likely to form part of a series of related transactions known as a conveyancing chain. With pressure to exchange contacts coming from above and below in the chain, defective title indemnity insurance can offer a swift solution and potentially prevent the chain from breaking.
These policies require a one-off insurance premium calculated by reference to the property’s value and the perceived level of risk. Usually, the premium is paid by the seller and most policies provide cover in perpetuity, protecting the current and subsequent owners as well as any mortgage lender with an interest in the property. Occasionally though, a policy may just protect a mortgage lender.
Should the need arise, your conveyancing solicitor will advise you of the option of taking out defective title indemnity insurance and, if you’re happy to proceed, will arrange the cover for you.