Indemnity insurance for conveyancing

Those involved with property ownership, investment and development, are normally required to have legal indemnity insurance in place. It insures against specific legal and conveyancing problems, which can arise when purchasing, developing or mortgaging land or property. These include restrictive covenants, defective titles, access and planning problems to name a few.

As well as the standard range of covers, demand is increasing for legal indemnity policies covering judicial review, rights of light and town or village green, along with those required on a pre-planning basis. Worryingly if a customer lacks an insurance solution to a title or conveyance problem, the property transaction could be significantly delayed. What's more, a transaction or development cannot proceed where no cover is in place.

Traditionally, solicitors have been responsible for securing legal indemnity insurance on their customer's behalf. However with the number of property transactions in decline and pressure on legal practices to save time and money, many solicitors are increasingly turning to insurance brokers to arrange this type of insurance.

Town and village greens

With planning issues high on the political agenda, the growing use of town and village green (TGV) legislation never seems to be far away from the front pages of the regional and local press.

It's probably fair to say that the TVG issue meets all the conditions for another Great British confrontation. We have a government, desperate to create opportunities to stimulate local economies, pitched against those arguing the rights of non-owners particularly for recreational purposes. This is all set against a backdrop of evolving case law relating to the balance between the rights of owners and non-owners, where some argue that the existing law is sufficient and others call for change. Caught in the middle are the hard-pressed local authorities, squeezed by financial restraint and cuts and hit by a flood of TGV applications.

A few high profile cases have helped to publicise the predicament of the many. Kevin McCloud from television's Grand Designs, for instance, has had to abandon some of his building projects because of successful applications for TVG status.

This state of flux is not good for any of the protagonists, least of all the landlords, developers and the UK economy.
Until a body of case law comes along to shape the evolving situation, there is a danger that many progressive projects all over the country will be baulked or abandoned altogether, with severe financial consequences.

Village green legal indemnity can provide protective cover to include legal costs and expenses awarded against the developer as well as other significant losses incurred. These range from covering the cost of altering or demolishing the development to protection from the fall in the market value of the land. The cover will also provide indemnity from claims made against the owner or developer.

It's true that this sort of indemnity insurance comes with some strings attached. Not unnaturally insurance underwriters want to know all the facts before agreeing to provide cover and the uncertain legal picture doesn't make this any easier. In other words the form filling can be a headache. Information required will range from the nature and previous use of the land to boundary features and the use of the land 'by permission'. But it may also delve into the long history of public use and the nature of any adverse publicity or objections in the past.

The downside risks to projects hit by a TVG application is, however, so great that many developers are only too keen to wade through the form filling. The view of finance directors is that companies, already under financial pressures, can scarcely afford to take on yet further risk. Often indemnity cover will be a 'must-have', at the insistence of shareholders, backers or lenders, who are only too aware of the impact of a TVG registration on the value of the land and the viability of the developer.

Right of light

Rights of light goes back to the Middle Ages, but it was the 1832 Prescription Act that made blocking light to neighboring properties an injunctionable offence. In reality though injunctions were not used and the Act simply led to compensation being paid out to claimants in relation to the seriousness of the injury and on the basis of whether it felt right.

In the past few years, however, the courts have caught everyone on the hop by granting injunctions and in 2010 a case brought against Marcus Alexander Heaney over a Leeds office development led to a ruling that two floors of the building under construction should be removed. Although the parties subsequently settled out of court '“ thus failing to create any useful case law '“ the whole process sent tremors through the construction industry and, even more importantly, through the lending community. The fear, already being realised, is that this will ratchet up compensation claims to alarming levels.

Impact on developments

Banks, of course, drive developments these days. Their impact is there for all to see on the London skyline, the Shard for instance, but other major developments in the heart of the City appear to be mired in financial haggling. And there are indeed projects that have been slowed by the fallout from the Heaney case; the Walkie Talkie building in Fenchurch Street being one of them. In this case the developers successfully invoked section 237 of the Town and Country Planning Act on the grounds that it provides economic benefits to the surrounding area. But then the City of London has always been a special case.

In calling the shots, banks, of course, want to protect their investment and they don't like uncertainty. They will want a first charge on their loans, and may also insist on insurance policies being in place to afford this protection.

Calculating risk

Key to deciding whether insurance is a solution or even an option is a specialist right of light survey, which will accurately assess the injury to owners of neighbouring buildings and insurers can then decide whether the risk is insurable.

Insurance will not only benefit the developer, financial backers and owner, but also subsequent owners, because the risk has been effectively dealt with. This is an important factor in selling on the property.

Often developers are prepared to negotiate compensation awards with neighbours and employ insurance only to deal with 'disaster scenarios'. The policy in this case will kick in when a rights of light injunction threatens the viability of the entire project. So there might be a very high excess and developers would be encouraged to enter into a code of conduct to mitigate risks, which may, in this instance, include keeping their neighbours fully informed and negotiating with them over right of light issues.

City centre developments with multiple neighbours clearly present the biggest risk ?of right-of-light injunctions. But the Heaney case has muddied the waters for all developers. While no one has yet been forced to tear their building down, there is ample evidence that compensation claims have been soaring as a result of the uncertainty. Insurance offers a serious option for taking back control, at least until the Law Commission tells us all what is a reasonable course of action in these disputes.