At a glance
- Legal and planning issues can cause major difficulties for real estate customers
- In addition to direct costs, brokers need to consider the wider implications for business interruption and potential lost profits
- Extensions and tailor-made solutions are now widely available and can help achieve better outcomes for your customers
No matter how sound a property purchase appears on the surface, there is always the potential for hidden surprises to be unearthed.
Whether it is the judicial review of a planning decision, or questions over title, property disputes can significantly delay new developments, and cause major difficulties for existing ones – adding costs and causing substantial disruption to a business.
Property law is fraught with complexities: restrictive covenants, rights to light, easements and disputes over title – and all have a bearing on the characteristics of a property and its permitted use.
A recent dispute between Robbie Williams and Led Zeppelin’s Jimmy Page hit the headlines after Page objected to work being carried out on Williams’ new home, fearing damage to his own historically important neighbouring London property.
Meanwhile, Kate Moss upset local residents with £2.5m-worth of renovation works to poet Samuel Taylor Coleridge’s former Grade II listed house.
And it’s not only the rich and famous who can encounter property problems – they can cause major difficulties for your real estate customers too.
Example 1 – restrictive covenant
A supermarket chain acquires a site to build a new superstore, but a competing business argues that a restrictive covenant bans the sale of alcohol.
If the covenant is upheld, and the supermarket is not able to sell alcohol, then its profits will be affected. The business might decide that the development is now unviable, and their only option is to sell the land and relocate.
In this scenario, the business is likely to suffer several unexpected losses: legal costs in disputing the covenant, additional interest payments on any loans during the delay, loss of value to the site, potential lost profits, and the cost of relocating.
Beyond core coverage
In the examples shown, the businesses would be indemnified for legal costs and damages arising from the dispute, and any other direct losses, such as loss of value to the land. However, not all legal indemnity policies are the same, and many will not automatically compensate customers for those critical knock-on effects that will impact their business.
“Legal disputes can take a notoriously long time to resolve,” says Valerie Hosty, Legal Indemnities Manager at Zurich. “During this time the business is likely to suffer additional losses, from either delays to a development, or interruption to their existing business.
“For example, for any developer, a delay in completing a build, or difficulties in selling/renting a property, can have major financial implications. If it does not insure against factors such as additional interest payments on loans, loss of future rental income, and any other costs incurred by the delay, it can be catastrophic for its business.
Example 2 – right of way
For 30 years a business has made deliveries through an access road owned by a neighbour despite not having a documented right to do so, thus acquiring a prescriptive right of way.
The business is sold and the new owner intends to expand the number and size of deliveries through the access road. The neighbouring landowner is not comfortable with the increase in activity, and argues that it constitutes a change of use, significant enough for the prescriptive rights to no longer apply.
If the new owner cannot receive deliveries to support its expanding business, an inability to do so will affect its profits. The business will incur legal costs in attempting to defend its right of way, lost profits if it cannot achieve its desired level of deliveries, and the potential cost of relocating if it decides the site is now unfeasible.
“There are a number of extensions – such as loss of profit and advance rent receivable and a variety of delay costs – that are readily available on legal indemnity policies. Brokers should be discussing these with customers if the issue could potentially result in a disruption to the business.”
Legal indemnity insurance protects against a wide range of potential property issues and disputes. The core coverage indemnifies against losses arising directly from a dispute – in particular, legal costs, possible compensation payments to third parties and any loss of value to the property.
Zurich provides a wide range of legal indemnity solutions, including tailor-made policies that consider the wider impacts to a customer’s business.
- Absence of Easements
- Rights of Light
- Contingent Buildings Insurance
- Defective Title
- Mining Rights
- Flying/Creeping Freehold
- Good Leasehold Title
- Insolvency Act
- Lost Title Deeds
- Leasehold problems
- Missing Landlord
- Judicial Review and other Planning and Building Regulations issues
- Restrictive Covenant
- Search Insurance
Brokers are encouraged to get in touch to discuss the solutions available and how they can achieve the best outcomes for their real estate customers.