Defective Title Insurance
Defective title is a generic term. A title is considered to be defective where there is potential for a third party to establish or attempt to establish an estate right title or interest which is adverse to, or in derogation of, the property owner’s title to the property.
A defective title can lead to the property owner being liable for compensation or damages; can result in the prevention or curtailment of a development; can even result in the property owner being forced to relinquish title to part or all of the property.
Whether a matter affecting the title to a property is considered to be defective can vary considerably. However, some of the more frequent defects in title that arise are:
- Adverse possession – an absence of title to land which has been adversely possessed in derogation of the true legal owner’s title
- Adverse third party rights or easements – the title to the property is subject to known or unknown third party rights
- The title is registered with less than an absolute title, i.e. it is registered possessory title, good leasehold title, or qualified title
- Lost title deeds – some or all of the title deeds to the property have been lost or destroyed; such lost title deeds may contain unknown matters, rights and easements that the property remains subject to and the absence of the original or certified copies of the deeds may result in the Land Registry registering the title to the property as possessory
- The registered title or other documents of title may contain reference to deeds and/or other documents of title which are unavailable and the contents of which are unknown but nonetheless to which the property may remain subject
- The title is subject to a grant or reservation of rights in relation to mines and minerals or other manorial or sporting rights
- The title may be subject to an estate contract (e.g. one containing pre-emption rights, put agreements, overage agreements, etc)
- The title deeds or their plans may contain inadequate descriptions of all, or part of, the property.
- Technical problems that exist with either the title itself or the documents that make up the title, e.g. lack of an assent
- Liabilities or issues that arise out of statute (e.g. School Sites Act, Place of Worship Act, Registration of Common Land Act, Matrimonial Act, various Housing Acts and the Insolvency Act)
The title may also be considered defective where it does not record certain rights or easements required for the use and enjoyment of the property. For more information on this please refer to absence of easements insurance.
Similarly, where the title is subject to known or unknown freehold restrictive covenants which have, may have been, will or may be breached, the title may also be considered defective. For more information on this please refer to restrictive covenant insurance.
Why take out defective title insurance?
Defective title problems in the property deeds can make sale of a property very difficult without a suitable insurance policy to protect the buyer and the lender against any financial loss that could result.
A title that is defective could result in the property owner becoming subject to claims or disputes that create a financial liability for the property owner, or which affect the way in which the property owner can enjoy, use or develop the property causing financial losses to arise.
Cover can be considered on a continued use basis and also on a development or change of use basis.
Depending on the nature of the defect in title and acceptability of the risk, terms may be considered either on a pre-planning basis or on a post-planning basis (i.e. planning consent has already been obtained, the development proposals are therefore in the public domain and neighbouring property owners should be aware of the proposals).
Defective title insurance can provide the additional benefit of ensuring the mortgage lending is available and is not delayed.
Whilst in some instances it might be possible to negotiate with a third party to overcome a title issue, such approaches may be more expensive and time consuming than simply obtaining defective title insurance. Negotiations with third parties may still leave a residual risk for which insurance continues to be required in order for a lender to agree to release funds.
Defective title insurance benefits
Defect title insurance provides protection against financial losses that might arise in the event of enforcement or attempted enforcement of a possible breach of a restrictive covenant.
Generally, a policy will provide cover for loss relating to:
- damages or compensation awarded against the insured by the Courts
- cost of altering, demolishing and/or reinstating all or any part of the property including any part of any building or other construction on or forming part of the property
- reduction in market value
- abortive costs of works
- costs of settlement
- defence costs
- cost and expenses incurred with the insurer’s consent
Depending on the circumstances of an individual transaction and our assessment of the defects in title, cover may be available to cover other losses such as business interruption losses.
A defective title insurance policy provides cover in perpetuity and as such can usually benefit successive owners of the property and their lenders.