Search insurance case studies in conveyancing risk management
To search or not to search
It is always a dilemma for conveyancing solicitors; to search or not to search when purchasers want to skip that key stage of the conveyancing process.
Often a purchaser is desperate to complete, for example, because they have a tenant lined up to rent the place or they need to complete the purchase to get their children settled in the new home and ready to start school in the autumn term. Other buyers just think that they know best and are confident that in a built-up area a local authority search won’t reveal concerning planning applications or that a mining search won’t reveal their dream property was built on a mine shaft.
Of course, there is no option but to search and wait for the results if a purchaser is buying with a mortgage and the lender wants the search results before they will release completion funds.
In other cases, it isn’t as clear cut, for example cash buyers, re-mortgages or lenders who are prepared to proceed, subject to conditions, without all the searches a conveyancer would usually recommend for a property in a particular location. Even lenders who would normally require searches are willing to consider a search indemnity policy where there are very long delays on local authority searches with purchasers risking their chain collapsing or having their mortgage offer expire before completion.
Search delay indemnity insurance
Our first search Legal Indemnity Insurance case study involves a search delay policy. A CLS search delay policy had been taken out by the insured in circumstances where the property solicitor had requested the searches but they were not available before exchange. The insured judged it was better to proceed with the purchase without search results but with the security of a search delay insurance policy.
The conveyancing solicitor was able to complete the purchase and all appeared in order as the buyer was delighted on move in day. However, there is sometimes a catch and, in this case, there was one.
- The issue: When the local search results finally arrived at the conveyancer’s office the search revealed charges on the title references. The charges were imposed by the local authority following the removal of waste from the property. The waste removal took place prior to the insured’s purchase of the property with the local authority taking action against the former legal owner of the property by issuing a Section 38 Notice under the Clearance In Default of a Public Health Act 1936. There was also a Section 81 notice under the Environmental Protection Act 1990 for cleaning up the land. As the former property owner did not comply with the notice , the local authority carried out the clearance and added a charge on the property to cover the financial costs incurred.
- Assessment: The insured rightly made a claim on their search delay policy as had completion been delayed until the search results were available the local authority charge would have been spotted by the conveyancing solicitor and dealt with prior to completion. When the claim arrived with the CLS claim handlers they assessed the risk and determined it was likely that the seller would have known about these charges as they occurred during their ownership. Accordingly, there was a claim for misrepresentation that could be pursued by the insured with the backing of the CLS indemnity policy.
- The outcome : A bit more digging by the CLS claim handlers revealed that the seller was incapacitated at the date of the sale of his property and that the circumstances leading to the sale were ill-health requiring a move to a nursing home. Whilst the case handlers concluded there was still a potential misrepresentation claim, the decision was taken to pay the claim in full at a cost of just over £2,300.
- The take out : Sometimes there is the potential for litigation arising out of a Legal Indemnity Insurance policy. In this case a misrepresentation claim against the former owner brought by the insured, but funded by CLS, under the terms of the insurance policy. The CLS claim handlers were able to take a pragmatic approach. Payment meant the local authority charge was removed providing a quick solution for the insured and without the elderly former owner being pursued through the court for the recovery of the £2,300.
No search indemnity insurance
In our second search insurance case study, no local search was carried out prior to completion as the purchaser weighed up the delay occasioned by waiting for a search and decided on going ahead with completion of the purchase without one.
Thankfully, the insured minimised the risk that they were taking through buying a CLS search Legal Indemnity Insurance policy on the recommendation of their property solicitor who had patiently explained that a local search doesn’t just reveal nearby planning applications but other ‘’nasties’’ that could seriously affect the value of the property.
- The issue: A prohibition notice was in place on the property purchased by the insured and, without the benefit of a local search, this was not known to either the insured or their conveyancing solicitor. The prohibition notice placed restrictions on the property and said no one was to occupy or let the property until remedial works had been carried out to the property.
- Assessment: The insured made a claim on their search insurance policy as had a local search been commissioned the prohibition notice would have been revealed and the insured could have either backed out of the purchase or negotiated a price reduction to cover the costs of carrying out the remedial work and the hassle involved in removing the prohibition notice.
- The outcome : Quotes were obtained to address the condemned boiler and damp issues that had led to the prohibition notice and restriction. The policy covered the costs of installation of a new boiler, as well as the costs to remove the notice including the legal fees. The cost of the charges covered by the CLS policy were £2,040.
- The take out : If a buyer is going ahead with a purchase without a local search, they need to realise that a search covers more than warnings about local planning applications. A search Legal Indemnity Insurance can be the solution to some of the potential issues that can crop up when there is no local search undertaken prior to a property purchase. In this case study the insurance search premium was very modest given the level of protection it offered and it provided a means for the house completion to take place in a timescale acceptable to the insured.
CLS here to help
CLS has over 15 years of experience in helping conveyancers with both residential and commercial property transactions. Our online portal is free to register and you’ll find our range of over 60 policies and products at your fingertips – including Variable Statements of Fact to let you customise to your client’s needs for the full range of legal indemnity policies. Online indemnity insurance protection is available within a matter of minutes. If you’d rather speak to someone, we also have a team of specialists who can help you out with a bespoke offline policy. Click here to start working with us.
This article was submitted to be published by CLS Property Insight as part of their advertising agreement with Today’s Conveyancer. The views expressed in this article are those of the submitter and not those of Today’s Conveyancer