When a property is being sold, the Title Deeds (the documents setting out legal ownership, boundaries, rights of access etc) will be examined by the purchaser’s solicitor. The purchaser’s solicitor will want to be satisfied that the seller can transfer valid title to the purchaser at settlement and that there are no defects with the title which may adversely impact on the purchaser. A lender taking security over the property will also want reassurance that there are no such defects affecting the value of the property or the lender’s ability to sell should they enforce security in their favour.
What is a ‘title defect’?
A ‘title defect’ arises where an aspect of the title is missing or negatively affects the land. For example, the absence of Planning Permission, Listed Building Consent, a Building Warrant or a Completion Certificate in respect of the construction, alteration or extension of a property.
How does a Title Indemnity Policy (TIP) work?
A Title Indemnity Policy (TIP) does not remedy a title defect. Instead, a TIP mitigates risk by providing financial compensation in the event of a title defect causing loss, subject to the limit of indemnity specified in the policy - the limit usually being the value of the property. A TIP is often a cheaper and more practical solution compared with remedying the defect.
Using the above example of a lack of Planning Permission, Listed Building Consent, a Building Warrant or a Completion Certificate, a TIP would provide financial compensation in the event of the local authority taking enforcement action requiring the purchaser or a future purchaser to return the property to its original condition or carry out further works.
If you are selling and your solicitor advises that TIP is needed, your solicitor will obtain a quote from an insurance company offering TIPs. The quote will be calculated based on the value of the property, the nature of the defect and the level of risk associated with such defects. TIP premiums usually entail a one-off payment and policies are transferable to future buyers. In order for a TIP to remain effective, the seller must not make any attempt to remedy the defect or disclose the policy to any third party except a purchaser.
