You may have happily proceeded through your Conveyancing life without the sniff of anything remotely like a Conveyancing defect to get in the way of your buying or selling.
Even where you have encountered a defect in most instances the only effect would be a small increase in the cost of your move.
But, in the worst case, a conveyancing defect could scupper your house move.
Welcome to Day Welcome 18 of our blog a day in May series entitled your Conveyancing questions answered – all in one place: Conveyancing Defects
What is a Conveyancing Defect?
A Conveyancing defect can be a gap or an irregularity in the legal title to the property.
But, Conveyancing defects are not restricted to the legal title.
Defects can also involve e.g. a lack of documentation for building works carried out to the property, which recently includes electrical work and new or replacement windows fitted to the property.
Some defects are trivial and can be remedied quickly others can take a little while longer.
But, they will need to be dealt with.
What Happens When a Defect is Discovered?
A Conveyancing solicitor’s first port of call where such defects are discovered is to ask for the defect to be rectified.
Where a document is missing, say a death certificate, the process is simple.
You ask for a copy or approach the relevant Probate Registry if one cannot be located
Where there is evidence of a long-standing usage of a footpath for example, but no documentary evidence to support the usage, the Seller might be asked to swear a document known as a Statutory Declaration.
The Statutory Declaration will detail actual personal knowledge of circumstances which have existed over time.
A series of Statutory Declarations can build up, over time, a compelling body of evidence. Such evidence could be used to document the right at the Land Registry.
Deeds of Rectification may be required where the defect is sufficiently important to be remedied by a fresh document.
When all else fails either an application to a Court or Tribunal for a ruling on the status of the defect might be the only solution.
What Happens Where The Defect Cannot Be Rectified?
In an ideal world, your Conveyancing Solicitor would have the time and the resource to fix the problem with further investigation and snazzy detective work at a reasonable cost.
In the real world, your sale or purchase is likely to be linked to a series or a chain of conveyancing transactions.
The pressures are such that time to investigate a lasting remedy are limited or too costly.
Chances are that your Conveyancer will turn to Insurance Companies for solutions.The line of least resistance, if you will.
The Insurance Company will issue an Indemnity Policy to cover the defect or potential liability.
Conveyancers have an exemption under the Financial Services and Markets Act of 2000 to arrange indemnity policies where the activity is incidental to a Conveyancing transaction.
Conveyancing solicitors normally arrange the indemnity policy themselves under a self-certification scheme for straight forward issues. For more complex issues the Conveyancing solicitor would write a report setting out the facts and sending it to special underwriters.
The premium is a single premium and not a recurring yearly premium, typically between £250 and £500
Common Types of Conveyancing Defects
Restrictive Covenants are very common.
Restrictive covenants can e.g. restrict your ability to add or amend your property without a third party’s consent.
You could also have a covenant restricting the building of another property in your garden or a ban on using the property for commercial purposes.
What types of Indemnity Insurance are available?
There are 15 or so commonly used Indemnity Insurance Policies.
1. Adverse Possession
2. Lack of Rights of Way and Services
3. Transfers at Undervalue
4. Lost Title Deeds
5. Manorial Rights
6. Common Land
7. Mines and Minerals
8. Outstanding Leasehold Interests and Mortgages
9. Possessory/ Qualified/ Good Leasehold Titles
10. Rentcharge Liabilities
11. Absent Landlord
12. Flying/ Creeping Freeholds
13. Maisonette Indemnity
14. Gifted Deposits
15. Chancel Repair Liability
We’ll take a look at a couple of these Indemnity Insurances
1. Chancel Repair Liability Insurance
The insurance covers the homeowner ( and successors) against the potential responsibility for the repair of the chancel of a nearby medieval church.
2. Gifted Deposit Indemnity Insurance
The insurance covers a Lender against parents ( the Bank of Mum and Dad) going bankrupt where they have gifted part of the purchase price for the property to another family member.
3. Restrictive Covenant Indemnity Policy
This insurance covers the new homeowner against any proceedings for lack of approval or a prohibition against development at the property e.g. where an extension has been built.
Are Conveyancing Indemnity Insurance Policies All They’re Cracked Up To Be?
A defective title indemnity policy is like a sticking plaster; in the majority of cases it will suffice and the pain will eventually go away.
But there are also a few issues that you should be made aware of:
- The policy may only run for a specific period of time.
- The policy is confidential and may only be disclosed to prospective purchasers, their mortgagees and their respective legal representatives. This is to avoid in the Insurers’ eyes “people coming out of the woodwork” and making claims.
- The policy may be avoided if there is a change of use of the property e.g. residential to business use.
You will not be covered for the full amount you paid for the property, but merely the adverse difference in the market value of the property
So, you may rely upon an Indemnity policy in the vast majority of cases. They are not a perfect solution, but nevertheless an adequate solution.
At a conference of about 350 Conveyancing Solicitors, I attended recently, the audience was asked had they known of a situation where a Defective Title Indemnity Policy had been invoked. Not one hand went up!
In all case, you should take the advice of your Conveyancing Solicitor.
Can You Rely on Conveyancing Indemnity Insurance Policies?
Conveyancing Indemnity Policies are not a perfect solution, but nevertheless, they may be an adequate solution.
As an aside I attended a conference of about 350 Conveyancing Solicitors in 2011 where the attendees were asked had they known of a situation where a Defective Title Indemnity Policy had paid out.
Not one hand went up!
But, I’ve also spoken to Insurers who say they have paid out thousands of pounds for claims which did not involve Solicitors.
So, good news is if your Conveyancing Solicitor is good at solving problems it should not cause too much delay.