What's your policy on policies?
21 June 2012
Get a policy. It’s the first thing that most lawyers say, when faced with a missing title document or a restrictive covenant which they aren’t sure about. The thing is, I’ve been a property lawyer for over 25 years and I’ve never claimed on one. Not once. Ever.
A straw poll round the office reveals the same. No-one has. Like chancel repairs insurance, it’s just something lawyers do, often without assessing the real need for it.
So, why do we all just reach for the broker’s number? Sometimes, frankly, it’s just ease. For some lawyers, it’s quicker (and, where there is a fixed fee, more cost-effective) to get insurance than it is to spend hours digging around, trying to find all the relevant documents and analysing their meaning.
Often, it’s simply a response to demands of funders, for whom – and how things change – even the slightest degree of risk is now anathema. The bank relies entirely on its lawyers and their stonewalling approach simply reflects the bank’s huge aversion to risk. It’s easier to insure than it is to advise. Or risk being sued.
But, from a property owner’s point of view, the insurance policy shouldn’t be the very first (and last) thing you reach for, even if the funders may still require it.
With a little bit of thought and persistence, a lawyer can often find the missing documents, or work out the potential enforceability of a restrictive covenant.
Often, documents of relevance will appear on adjoining titles. In many cases, having done a little investigation, you may come to the view that the historic covenants will no longer be enforceable. You just have to do the work and try to understand the law. Which is complex. And a search or two, costing a few pounds, can save many thousands.
And more to the point, when you do find that missing document, you will be able to work out what the issue actually is. Particularly where development is concerned, an insurance policy should be the last resort, not the first.
And the policy itself? I suspect that very few lawyers actually read the small print, or explain to their clients how the policy actually works. I had a banking client who was under the illusion that there would simply be a payout of the amount of the cover, in the event of a claim. As if.
And who decides the amount of cover? The lawyer? The client? The bank? Figures can be plucked out of the air, often on the basis of the amount of a bank’s loan, which mean that policies are often taken out for amounts which have not been properly assessed and, particularly in relation to older policies, which bear no relationship to the current market value of the property and the potential loss.
And if you ask any lawyer, I suspect they’d say that they wouldn’t want to actually rely on an insurance policy. I mean, we all know that any insurer will look for a loophole to try and avoid the policy don’t we? But yet how many actually check the original proposal form in relation to an existing policy, or one provided by the other side? One error, one non-disclosure and it’s game over.
So, don’t automatically rush for the telephone. Think about what it is you’re insuring against and why and see whether or not you can work out what the risk really is. Do your homework. If you really can’t find that missing document or work out who might have the benefit of that old covenant then fine, go ahead and insure. But the irony is, that having done your homework and found nothing, the risk which you are insuring against is probably quite low. But peace of mind is priceless.