Legal Indemnities Seminar

Transcription

1 Legal Indemnities Seminar Thursday 31 st January :00pm 18:00pm At Squire Sanders, Rutland House, 148 Edmund Street, Birmingham B3 2JR

2 Legal Indemnities Bisma Mahmood Associate Director Adding value to the property transaction process with Legal Indemnities

3 1. Introduction - What is Legal Indemnity Insurance 2. Who are the Market Leading Insurers 3. Advantages of Using a Broker 4. Limits of Indemnity 5. Typical Policy Conditions 6. Disclosure of Material Information 7.Why not to make Enquiries of Third Parties! 8.Common Types Risks & Information Required by Insurers for Quote Purposes 9. Case Studies

4 1. Introduction - What is Legal Indemnity Insurance Protects an owner, developer or lender against defects in title discovered during the due diligence process. Covers against gaps in title conveyance should ownership of land be challenged. Protection against third parties looking to enforce rights or restrictive covenants that can affect the use of a property. Protection against the consequences of planning risks, rights to light and chancel repair liability etc. Examples of insurable defects in title and other insurable risks:

5 Breach of Restrictive Covenants where covenants are breached which restrict the use or type of building. Chancel Repair where a property is located within a parish potentially liable for Chancel Repair payment. Adverse Possession where paper title to a property cannot be evidence. Possessory Title/Good Leasehold where paper title cannot evidence or ownership has been claimed by way of adverse possession. Missing Title Deeds/Documents where there is a reference to a deed or document containing rights, easements and other provisions which are unknown. Village Green where there is a risk that an land could be registered as village green. Rights of Way/Reservations of Rights where a property owners title is subject to rights of way/reservations adversely affecting its value or proposed use if exercised in the future. Lack of Search Indemnity common in re-financing scenarios where searches are not being carried due to lack of time. Unknown Rights/Covenants where a deed on a registered title refers to rights/covenants but the contents are unknown. Rights to Light where the property is subject to third party claims to rights to light. Judicial Review Cover - protects against the financial losses should planning consent be subject to a Judicial Review. Lack of Access or Easement for Services where there are none or inadequate legal rights to exercise rights over a neighbouring property. Mineral Rights where mines and minerals have been excepted and reserved from the land.

6 2. Who are the Market Leading Insurers ISIS

7 3. Advantages of Using a Broker Access to leading title insurers Independent Professional and personal service

8 4. Limits of Indemnity Usually the limit of indemnity requested is the purchase price (property value) or the fully developed value. Any other losses to be covered? Does the client require additional cover for: Business interruption losses (if trading) Rental liability (if Tenant) Rental income (if Landlord)

9 5. Typical Policy Conditions Control of communication with Third Parties. Prohibit the disclosure of a policy. Assignable to future owners. Duty of disclosure and not to admit liability.

10 6. Disclosure of Material Information Obligation under any insurance contract. Example of material facts: Risk declined by another insurer. Communication and enquiries with third parties. Knowledge of a party that may have a benefit of any defect or encumbrance. Not to increase risk without Insurer s agreement.

11 7. Why not to make Enquiries of Third Parties! Could alert a third party to any potential rights and affect the availability of insurance. Any enquiries should be made with the utmost caution. Before making enquiries explore the insurance option fully.

12 8.Common Risks & Information Required by Insurers for Quote Purposes Basic Information required for all quotes: 1. Details of risk and why cover is being sought. 2. Address of Property or land concerned. 3. Name of insured and their address. 4. Value of property / land or GDV if development is planned. 5. Amount of cover required if different to the above. Is any additional cover is required for loss of profit, rental liability (if insured is a tenant) or loss of rental income (if insured is a Landlord). 6. Is their an existing policy in place for the same risk. 7. Current and future use of site. 8. If cover for future use is required: 1. Details of planning status has planning been applied for/granted? 2. Were any objections raised material to the risk for which cover is required? 3. Copies of all objections raised.

13 8.1. Chancel Repair Liability Depending on where the property is located, the owner may be liable to contribute towards the repair costs for their local church s chancel. Insurance provides cover where a claim to chancel repair is made. The policy is usually in perpetuity and protects the property owner, mortgagees and successors in title. Some insures limit the cover period to 15, 25, 35 years. N.B. By October 2013, Parishes must register their interest against a property s title at Land Registry. Information Required: 1. A plan of the property and size. 2. Confirmation that there have been no demands for payment towards the repair of the chancel from the church. 3. A copy of the Chancel Check Report or full search if one has been carried out. A full search can prejudice the availability of insurance. 4. Any other information likely to affect the underwriters assessment of the risk.

14 8.2. Possessory Title/Good Leasehold Title Where a property is registered with possessory title, indemnity insurance can offer cover against the possibility that a third party may claim ownership of the land, conflicting with the Insured s claim. N.B. Where an application at the Land Registry is imminent or pending Possessory Title cover will only be placed on risk once the application is decided. Where a property is registered good leasehold, indemnity insurance can offer cover in the event that the landlord s claim to the superior title is successfully challenged and that person then goes on to challenge the legality of the lease. If the challenge were to be successful the compensation would cover the full market value of the property (up to limit of indemnity) and if it were not, it would cover any legal costs involved in defending the challenge. Information Required: 1. Background information on the following: a. Has there been any attempt to contact any person(s) who may have an interest in the land or have any challenges received in relation thereto? b. Has ownership of the land been challenged in anyway? 2. A copy of any statutory declaration that was submitted to HM Land Registry in support of the application for first registration of the land. 3. A copy of the registered title granted at HM Land Registry. 4. Any other information likely to affect the underwriter s assessment of the risk Covers will be conditional on no challenge having been made at the time the indemnity policy is taken out.

15 8.3. Restrictive Covenants A restrictive covenant limits the manner in which the land or building can be developed or used. Restrictive covenants are private rights enforceable in contract between the original parties and subsequently, in equity, by and against successors in title. The law governing the circumstances in which restrictive covenants may be enforced is quite complex. Information Required: 1. Copy of any documents imposing the restrictive covenants to be insured (or such details as are available e.g. office copy entries). 2. Background information (if known) as to: a. The identity of the covenantees? b. Location of the benefiting land. c. Whether any approaches have been made to parties likely to have the benefit of the covenants. d. Any objections to the existing or intended use / development or to the planning application itself. 3. If development is intended: a. Layout plan of the proposed development. b. Have there been any similar developments carried out in the vicinity of the site? Can these be identified on a plan? 4. Any other information likely to affect the underwriter s assessment of the risk.

16 8.4. Lack of Access/Easement for Services Insurance is most commonly requested to cover situations where a property owner needs to exercise rights over neighbouring property for the benefit and enjoyment of his own property but is unable to demonstrate a legal right to do so. Information Required: 1. In relation to rights for access and / or services lacking, is the land over which the right /access is to be exercised: a. Registered or Subject to caution. b. Registered as common land or village green c. Registered public right of way. If so, provide copies of the relevant title or documentation. 2. Background information (if known) on the following: a. Has there been any attempt to contact the person(s) thought to own the access way? If yes, please provide details. b. Have the current owners of the land had any problems because of the lack of adequate rights? If yes, please provide full details. c. Other evidence supporting past and present use of the access or easement for services for as long a period as possible. 3. A draft statutory declaration confirming use of access or services. 4. Any other information likely to affect the underwriter s assessment of the risk.

17 8.5. Rights of Way/Reservations of Rights The property owner s title is or may be subject to rights that may adversely affect the value and/or proposed use of the property if exercised in the future. Information Required: 1. Background information on the following: a. Is the land fenced in and have the rights been physically incapable of being exercised for a period of at least the last 12 months? b. Has there been any attempt to identify and / or contact the person(s) thought to have the benefit of the rights? 2. A copy of the document imposing the right of way / reserving rights for which cover is sought or such details as are available e.g. office copy entries. 3. Any other information likely to affect the underwriter s assessment of the risk.

18 8.6. Mineral Rights Upon checking the title deeds to the land it may become apparent that mines and minerals have been excepted and reserved from the land, normally (but not always) by a specific deed. If the mines and minerals have been excepted and reserved then this means that a third party has the benefit of any mines and minerals that may lay under the property. Information Required: 1. A copy of the mines and minerals search. 2. A copy of the deed reserving the mines and minerals for which cover is sought or such details as are available e.g. office copy entries. 3. Any other information likely to affect the underwriter s assessment of the risk Cover is required in the event that a third party seeks to extract the mines and minerals from under the insured s land.

19 8.7. Rights of Light In England and Wales a right to light is usually acquired by prescription. A right to light automatically occurs once light has been enjoyed through defined apertures of a building for an uninterrupted period of 20 years. Information Required: 1. An up to date Chartered Surveyor's Right of Light report. This should include 3-D diagrams of the current and proposed layout of the buildings on the land and a cut back analysis. 2. Details of the development gain that can be attributed to the cut-back scheme identified by the Right of Light Report. 3. The amount of cover required and the basis on which this has been calculated. Would you be prepared to carry an excess if so, how much? 4. A copy of the planning permission granted for the development and details of all publicity and consultation undertaken with neighbours affected by the proposals. 5. Copies of all letters of objection/comment received by the planning authority during the planning process or direct to insured party and/or their representatives. 6. A copy of the registered title to the property and to those properties which are identified in the Rights of Light report as suffering an injury as a result of the proposed development. 7. Details of the proposed time-scale for completion of the development. 8. Photographs of the site and adjoining premises, if possible. 9. Details of any past complaints or disputes with any adjoining property owners.

20 8.8. Village Green Section 15 of the Commons Act 2006 ('the Act') allows any person to make an application to register land to which the Commons Act 2006 applies as town or village green. If an area of land is potentially registrableas a village green, not only does that raise the possibility of third-party rights over the land, but, worse still, there are stringent restrictions on the owner s ability to use (and hence develop) the land. Village Green Insurance can be used as a way of dealing with the exposure created by the Act. Policies generally offered by insurers on a post planning basis. Insurance provides cover for legal fees, abortive costs and loss of land value should your land be registered as a village green. Information Required: 1. A plan identifying the land to be developed. 2. Background information on the following: a. History of the site and its previous uses. b. Evidence to rebut grounds for an application to register the land as village green by reference to the criteria in section 15 Commons Act 2006, i.e, any fencing or signage around the site. c. evidence from the legal owner permitting the current use of the land. d. Photographs of the land detailing current state and boundaries. 3. Any other information likely to affect the underwriter s assessment of the risk.

21 8.9. Judicial Review The validity of any administrative decision of a public nature can be challenged in the courts for a specific period following the decision. If a planning permission is granted, there is a judicial review period (usually three months and 14 days) within which applications can be made to the High Court for the planning permission to be Judicially Reviewed. A third party who feels that the statutory process has in some way not been complied with makes such an application. Often, this is somebody who was originally opposed to the development for which planning was granted. Insurance is primarily sought to provide indemnity against financial loss incurred as a result of judicial review of planning permissions where the development of the land is to commence or the sale of the land is to occur within the judicial review period. Information Required: 1. Please supply copies of the application for planning permission/reserved matters approval and development plans and any amendments made to those applications (What additional notification steps were taken in relation to any amendments to the application? We are aware that Local Planning Authorities sometimes handle amendments to applications in terms of non statutory procedures that do not comply with the notification requirements in the TCPA 1990). 2. Please provide a copy of the report to the LPAs Planning Committee as well as the minutes of the Planning Committee. 3. The acquisition and development value of the site plus any development costs (including fit out works) that are likely to be incurred during the judicial review period.

22 4. Please provide copies of the objection letters lodged with the Local Planning Authority. 5. Please supply copies of local press reports regarding the proposals. 6. Please provide a copy of any s106 agreement or any drafts. 7. Please supply copies of the Planning Permission and if granted on appeal, any associated reports/decisions. 8. Please confirm whether or not the Local Planning Authority had any proprietary interest in the site. 10. Please supply details of the previous planning history for the site for the last 5 years. 11. Please confirm that you and your respective advisors nor the Planning Authority is aware of any matters/objections which would give rise to an application for judicial review. 12. Has an Environmental Impact Assessment report been prepared? If so, please supply. If not, insurers will need the Council s screening opinion to confirm the reasons why an Environmental Impact Assessment report was deemed unnecessary. 13. A copy of the registered title and plan of the site in question. 9. Does the site include a listed building or is it situated in a conservation area?

23 9. Case Study -Access Claim This case study offers an insight into the complexities of legal indemnity claims. In May 2008 a developer intended to change the use of a single residential property to 16 leasehold flats. For over 20 years, the property had enjoyed vehicular access via a strip of unregistered land. Despite the apparent prescriptive rights, indemnity cover was required for the proposed change in use of the property and to reflect the increased use of the access way. The planning report showed that 57 neighbours had been consulted and no objections were received, and no-one had come forward regarding ownership of the roadway. In June 2008 the Insurers issued an Access indemnity policy with a 1.8m limit of indemnity for a premium of and the development works went ahead. In November 2010, after the works had been completed, the Insured was contacted by a solicitor acting for Network Rail who advised that the access land belonged to them. Usually if an access way has been used for over 20 years, the first course of action for an Insurer is to assert that the insured has acquired the benefit of a prescriptive easement for the residential use of the property, which had continued following the developments. However, in this case, that this wasn t possible. Section 57 of the 1949 British Transport Commission Act (and a subsequent modification to the Act in 1993) states that no right of way shall be acquired by prescription over property of the Commission and any successors. In this instance, Network Rail was indeed a successor of the British Transport Commission which meant the Insurer had little choice but to try and reach an agreement regarding the purchase of legal rights of way. By getting involved early and dealing with the claim swiftly, the Insurer agreed a settlement of 120,000 plus over 13,000 in legal costs to obtain a formal deed granting rights of way for our insured.

24 Rights to Light Type of Policy -Rights to light Nature of Claim -Adjoining Public House affected by the rights to light issue. Owner approached by a solicitor willing to act on his behalf if he had an issue with the development. The Insured had a meeting with the PH owner who requested payment of 20,000. Action taken to deal -Survey confirmed PH did have benefit of RTL. Insurer spoke to agents who had useful local knowledge. Using this they were able to agree a payment of 15,000. Conclusion, costs and remedy -Insurer was able to agree a payment to the benefitting party to release their rights over the Property thereby allowing development to proceed. Total costs just over 18,000. Adverse Possession Type of Policy Adverse Possession Nature of Claim -Part of a hotel built on land outside the hotel's title. Transpires it was owned by the Local Authority who invited discussion regarding the land. Action take to deal -The LA requested payment of 90,000 plus costs for the transfer of the land to the hotel. The evidence for possession was for less than 10 years possession so were unable to demonstrate that it had been adversely possessed. Conclusion, costs and remedy -Insurer was able to negotiate a reduction in the price with the LA to 75,000 plus costs. Total payments were 85,000.

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26 Date Month Date Month GVA Schatunowski Brooks 31 st January 2013 Rights to Light - The Technical Analysis and The impact of recent case law Ian Absolon Direct Line: gva.co.uk

27 Is there a problem? Short presentation title here / November 2010 gva.co.uk

28 The Legal Basics Windows acquire rights through long usage, deed, grant or reservation. Long usage being the most common. The Prescription Act of 1832 lays down that rights to light are obtained by uninterrupted enjoyment for a period of twenty years. A right is not necessarily to the same standard of light as currently enjoyed. There is no right to an exceptional amount of light but only to sufficient light "for the ordinary notions of mankind". Generally - there being one exceptional case - it has been held that there is no right to sunlight and there is no right to a particular view. Basically one must establish on whatever grounds that a window has rights. Short presentation title here / November 2010 gva.co.uk

29 How are Rights to Light Acquired? There are three main ways: Express Grant/Reservation Implied Grant Prescription (Prescription Act 1832) Also Lost Modern Grant Short presentation title here / November 2010 gva.co.uk

30 The mathematical bit Percy Waldram in 1928 concluded that the value of illumination from one hemisphere of sky was the equivalent of 500 foot candles He had already concluded that the level of illumination at which the average person would grumble equated to 0.4% of one quarter of the sky which is the same as 0.2% of the hemisphere This grumble line was agreed at 0.2% which equates to a one foot candle of 1 lumen per square foot A lumen per square foot is a measure of illumination equal to that provided by a candle one foot away from you, providing enough light to read a newspaper Short presentation title here / November 2010 gva.co.uk

31 Sky Hemisphere Short presentation title here / November 2010 gva.co.uk

32 The Waldram Diagram Short presentation title here / November 2010 gva.co.uk

33 Obstructions to light Short presentation title here / November 2010 gva.co.uk

34 The answer 0.2% Contours Short presentation title here / November 2010 gva.co.uk

35 Valuation On a basic level, this is related to the lost area of light as indicated on the previous slide The loss is weighted dependent on its position in the room, i.e. light is more valuable at the front of the room This results in a total area of loss in square feet and one then applies a value of light per square foot. This varies depending on the location and type of building This is then given a current yield and valued to perpetuity The final figure is the value to the freeholder in possession Potentially if the loss was felt to be worthy of injunction an uplift might be applied based on the Carr- Saunders case (1986) Short presentation title here / November 2010 gva.co.uk

36 Midtown and Life After! A classic enjoinable case Probably the worst loss I have seen save for a window being completely bricked up. Short presentation title here / November 2010 gva.co.uk

37 Argued by CLRP that it would be oppressive to grant injunction if rights existed as offices used artificial light. Kendall Freeman argued they relied on their natural light but their employee workers failed to persuade the judge, generally talking about liking the view. Midtown got no injunction as the judge felt they were only interested in redevelopment ( totally correct!) KF got no injunction as the loss did not affect their user and they had failed to respond adequately to CLRP s many offers. Settled pre court hearing over compensation. Where did this leave us? Short presentation title here / November 2010 gva.co.uk

38 Tamares v Fairpoint The Accidental Case Short presentation title here / November 2010 gva.co.uk

39 Loss was v small, in fact proceedings brought for loss to flank windows of main offices, however these were lit from the main front windows and there was no loss During proceedings claimants attention switched to 2 basement stair windows. I had previously agreed 10,000 nuisance value inc developer gaining access rights. Short presentation title here / November 2010 gva.co.uk

40 No injunction granted but compensation based on loss of amenity value and loss of value of right to prevent infringement. The second element being based on the developer s profit. He laboured the point that the latter should be fair and feel right This has lead to almost every case being negotiated on a profit basis. Unbelievably unhelpful to a developer Applied to Midtown this would have been based on the value of 14 floors of New Street Square! Is this right, should this apply to every case or only where the neighbour might truly be able to injunct? Short presentation title here / November 2010 gva.co.uk

41 Forsyth Grant v Allen & Another (Court of Appeal) (2008) Damages based on value of loss not profit share This was a relatively small loss and the claimant was quite unreasonable in her conduct, i.e. not letting the developer s surveyor in to measure rooms etc However Judge clearly determined that the loss was not worthy of injunction or damages based on the Tamares case Traditional Surveyor s valuation of loss of amenity value was awarded. A comparison of the losses of light in the two cases would raise an eyebrow! Short presentation title here / November 2010 gva.co.uk

42 HXRUK II (CHC) Limited v Heaney (High Court) (2010) Mandatory Injunction post development Short presentation title here / November 2010 gva.co.uk

43 Circumstances of this case are now well known Losses as seen above are not in my view very serious, I would have expected compensation This has blurred the demarcation between injunction and not Previously I would have suggested a lesser test for an office than a residential condition Heaney puts this into doubt, do we now sit at 50% when advising even though on the Shelfer tests the judge did appreciate the test should be a lesser one for Commercial space? Are we now moving from a 50/50 grumble line to a proscriptive test? Short presentation title here / November 2010 gva.co.uk

44 Section 237 Town and Country Planning Act This is available on land that has been appropriated for planning purposes by a local authority Gives protection from injunction whilst giving Statutory damages, the latter being usually calculated on the amenity style valuation. As tested in Midtown this only applies to the development next after the appropriation but the benefit can pass to a developer Recent Property news has confirmed that the City of London will use these powers if they believe rights of light will prevent high profile schemes. Damages in lieu in the City s eyes might be as much as 5 times the base value of the amenity valuation. Short presentation title here / November 2010 gva.co.uk

45 Insurance This a relatively new product To date this was only available POST planning approval New products on the market to provide pre planning insurance and to allow contact with problem buildings whilst still being insured Will not be given for neighbours who have objected at planning Can be used to cover GDP and all eventualities, redesign, court costs etc Very useful to clear bank funding for marginally affected properties. Short presentation title here / November 2010 gva.co.uk

46 Legal Indemnities Seminar Thursday 31 st January :00pm 18:00pm At Squire Sanders, Rutland House, 148 Edmund Street, Birmingham B3 2JR