This section deals with those types of insurance that may be required to deal with defects in title, restrictive covenants and similar matters. There is a separate section dealing with insurance of the property itself.

Common insurance policies

It is potentially possible to insure against any contingency, so long as the insured has an appropriate interest in the item to be covered by insurance, except where the proposed insurance is contrary to public policy. However, there are certain matters relating to a property which are commonly covered by insurance, and these include:

• third party rights affecting the property;
• lack of necessary rights required for the benefit of the property;
• insolvency of a previous owner of the property (where there has been a transaction by way of gift or at an undervalue and that previous owner has since become insolvent, so that there is a possibility that the transaction could be set aside);
• lack of title to the property (in particular where a registered title is not title absolute);
• flying freehold (where there is a separately owned freehold title above or below the property, or part of it, so that there may be problems with repair or rights of support);
• absence of planning permission or other consents for works previously carried out to the property;
• restrictive covenants affecting the property;
• deeds or documents affecting the property which cannot be produced;
• absence of an official local authority search relating to the property, where contracts must be exchanged very quickly;
• the possibility that the property is liable for chancel repairs;
• the fact that the property has the benefit of planning permission but the period for a third party to challenge the grant of that planning permission by way of judicial review has not yet expired (this is most likely to arise in connection with a conditional contract, where the condition relates to the obtaining of planning permission, but completion then takes place before the judicial review period has expired).

Who pays for the insurance policy

Where the need for insurance arises from a defect in the property, such as a missing deed or lack of title to the property, the buyer will expect the seller to obtain and pay for the insurance policy, although this will not always be agreed by the seller, particularly where the seller takes a different view in relation to the alleged defect. Where, however, insurance is required to cover the absence of an official local search, and the urgency to exchange is coming from the buyer, the buyer should expect to pay for his own insurance.

Points to bear in mind in connection with insurance

Level of cover

An insurance policy to cover one of the matters listed above is likely to be a single premium policy, which will benefit not only the buyer and his mortgagee but also subsequent owners of the property and their mortgagees. However, the level of cover is likely to be that which is considered appropriate at the time of the buyer’s purchase, and this may become inadequate over the years as the value of the property increases. This is obviously not a problem in the case of a type of insurance policy that, by its nature, will last only for a short period of time, such as where the property benefits from a planning permission that may be the subject of a judicial review challenge. Once the judicial review challenge period (three months at the most) has expired, the problem will no longer apply. However, in the case of a restrictive covenant, cover will be required for many years to come. Accordingly, it may be necessary for a subsequent owner of the property to obtain a further insurance policy so that the level of cover can be increased.

Nature of an insurance policy

It should not be forgotten that an insurance policy will normally cover the diminution in value of the property if the defect or other matter which has been insured against materialises or is enforced – it cannot remove the defect. This may seem obvious, but for this reason, it may not always be appropriate to obtain insurance cover, particularly where the consequences of the defect or other matter are not solely financial in nature.

For example, there is no problem for the buyer in covering a possible chancel repairs liability by insurance, as any enforcement of the liability will simply result in money being due, which the policy will provide. However, where the defect or other matter insured against may adversely affect enjoyment of the property, money alone may not solve the buyer’s problem. A third party right to cross the property, for example, may impact severely on the buyer’s privacy and enjoyment of the property, particularly in the case of a residential property occupied by the buyer, and compensation for the reduction in value of the property may not be sufficient. In such a case, the buyer will need to consider the likelihood of the defect materialising or being enforced, as well as the availability of insurance cover.

Investigating defects that may be insured against

It should be remembered that excessive investigation of defects and other matters that may be insured against may make insurance cover unavailable. For example, insurers will normally be prepared to insure against old restrictive covenants affecting a property, subject to being provided with all the necessary information including, in the case of a development situation, a copy of the planning permission permitting the user of the property which breaches the restrictive covenants and details of any objections raised to the grant of that planning permission. Where, however, the seller or the buyer has actually approached third parties who may be entitled to the benefit of the restrictive covenants, the insurers may no longer be prepared to provide insurance cover, particularly where those entitled to the benefit of the restrictive covenants have become apparent and those third parties have become aware of their rights. The obtaining of copies of registered titles from the Land Registry may assist in finding out more about those who may be entitled to the benefit of restrictive covenants, but matters should normally not be taken further if insurance cover is to be sought.

Insurance Mediation Directive

Obtaining a defective title indemnity policy

A very large number of insurance companies provide defective title indemnity policies, including First Title Insurance plc, Royal and Sun Alliance Insurance plc and Stewart Title. Alternatively, having regard to the Insurance Mediation Directive, solicitors may prefer to arrange such insurance policies through a broker.

There are also web-based services that provide defective title indemnity policies on-line, including Titlesolv.com.

The Law Society has set up a dedicated quotation system for the provision of defective title insurance through Countrywide Legal Indemnities .