Olympic fever to spark title insurance boom
28 September 2009
Title insurers are expecting a boom in business in the lead up to the 2012 Olympic Games, as property developers capitalise on the thriving commercial opportunities in London's surrounding East End.
This investment hotspot is becoming increasingly attractive to both commercial and residential investors; however, the potentially lucrative returns must not overshadow the fact that the Olympics site has remained underdeveloped for decades meaning that, in many cases, land ownership has never become an issue until now.
A one-off premium buys a title insurance policy which gives an owner perpetual cover against the known title defect, and/ or protects a lender until the loan is repaid. Should an onerous encumbrance contained in the title deeds be enforced, the title insurer's standard policy provides cover for the legal costs, which could include the cost of an out of court settlement, as well as compensating loss in the value of the land.
Although key Olympic sites are likely to be acquired and developed with the protection of compulsory purchase powers, peripheral businesses, such as bars, restaurants and hotels, are exposed to the full force of title problems, such as a lack of documentary evidence of ownership of land, or burdensome restrictive covenants.
England is a minefield of ancient laws, which occasionally rear their ugly heads, to potentially scupper profitable deals - or put them on hold, at least.
A recent case which engaged the attention of title insurers across the UK, involved a company buying a piece of land with the intention of opening a pub there. Apparently unaware of a condition dating back to the nineteenth century which stated that no alcohol was ever to be consumed on that site, the company faced severe delays and subsequent financial difficulties; all of which could have been avoided with the employment of title insurance.
In short, title insurance protects owners from unexpected third party challenges, based on defects in title which may affect an owner's ability to use or develop the property. The cover provided by title insurance enables land to be developed, mortgaged and used, notwithstanding a range of title defects.
As with most types of insurance, title insurance mitigates risk. For example, no matter how diligent lenders or solicitors are, fraud and forgery appears to be an ever-present fact of life. As a result, lenders are increasingly turning to title insurers to cover the risk that fraud and forgery presents to them and complement the service provided by their solicitors. In this way, if the lender incurs a loss at the hands of fraud and forgery, the claim will be paid within weeks or months. Indeed, enlightened solicitors are also using title insurance to achieve better, faster and cheaper completions for their lender clients.
The importance of providing such cover must not be underestimated, as identity theft and related frauds are the fastest growing crimes in the UK. In 2002, according to Cabinet Office figures, fraud cost UK taxpayers £1.3billion.
Interestingly, no further data has been officially released since, but it is goes without saying that as property prices continue their meteoric rise, fraud and forgery will also continue to escalate.
Title insurance helps property developers to balance return with risk, while enabling the project to be completed as quickly as possible, at the lowest cost, but without compromising on security or quality. Whether it is obstructive ancient laws, land ownership disputes, or fraudulent activity which threatens to hold-up development, title insurance can help to mitigate the risks. At risk from all of the above and time-sensitive, as well as scrutinised by the world's media, the Olympic Park in London is expected to spark a significant surge in title insurance business over the next couple of years.