Calculating Loss & Loss of Profit

The common definition of loss for title policies is the loss in land value. In the event of a claim, this loss would be calculated by an independent surveyor, who would look at the difference between the purchase price and the current value up to the maximum sum insured on the policy. They would take additional factors into consideration. Areas such as loss of rent, if loss occurred for a land owner and their tenant had to subsequently leave the premises this may be factored into the total amount claimed. What isn't covered as standard is any loss of profit, as it would have to be factored into a policy from outset. As this is something known only to the client this is calculated in advance. There is an additional premium but this can be added to the policy. The maximum cover First Title Insurance Plc can protect is £2.5 million loss of profit for up to two years after the claim.

Protecting your Property Assets in years to come

Has the market bottomed out yet? Possibly, we may not know for definite, one thing we would certainly hope is that the property asset you purchase at this time should be worth more in five to ten years time. If you are buying a policy now it may not fully protect you in years to come, if you sell in future you may be required to buy a top up policy to cover the increase in value. Adding inflation cover to your policy now can be considerably cheaper than buying another policy in future and you wont have to go through any further underwriting.

Inflation Cover

For an additional 25% of the initial premium inflation cover can be added that increases the sum insured by 5% per annum up to a maximum of ten years. Effectively providing a maximum of 163% increase to the sum insured for only 25% extra now.

Useful Information and Specialist Risks

Assesing the Sum Insured

Ensuring you or your clients are fully protected is of the utmost importance. At ABIS we always work with you to provide the most comprehensive policy available for your transaction. Assessing the level of cover and identifying the relevant heads of loss can be difficult in certain situations. In the pages below I have tried to identify some of the specialist risks and helped define some of the factors that should be considered when calculating loss and the cover required. These are only useful guidelines and I would always suggest we get involved on an individual case-by-case basis to asses each one along with the experienced underwriters at First Title.

Consequential Loss

There are other factors that you may want to take into consideration when obtaining a policy to ensure you are fully protected. In many situations if a title risk were to hinder your use of the land or put a hold on your development you could incur additional costs. By adding a consequential loss endorsement you can protect against.

Additional interest payable to a bank or other financial institution in relation to a loan made or facility granted solely for the purpose of the Works.
Additional expenditure necessarily and reasonably incurred by the Insured for the sole purpose of permitting staff, plant or other equipment to be utilised at another location.
Depreciation and other standing charges (including contractual payments due in relation to leases) incurred on account of plant and equipment acquired solely and necessarily for the purpose of the Works that cannot be utilised elsewhere.
Wages, salaries and other costs of staff engaged solely and necessarily for the purpose of the Works who cannot be employed elsewhere.
Sums (other than those relating to leases of plant or equipment) contractually due (whether as penalties or otherwise) to third parties with whom the Insured has a contractual relationship related to the Works.

Judicial Review

First Title has for the last two years been supporting clients by providing cover that insures against potential losses arising from a successful judicial review. With over 500,000 applications for planning permission each year in the UK, First Title believes this is a product that has real benefits for private and commercial developers alike.

The heads of loss covered under the Judicial Review policy are:

The difference in the market value of the Land with the benefit of the Planning Permission and its value following the quashing of the Planning Permission;
The cost of works (including professional fees) actually carried out on the Land by the Insured in the period between the grant of the Planning Permission and its being quashed;
The cost of such works which the Insured was contractually bound by a contract entered into before the date of the Planning Permission to carry out.

When calculating you or your clients' loss you also need to consider additional consequential losses you may incur, this ishighlighted above.

[Information required to provide a Judicial Review quote]
[link to Judicial Review case study]

Rights to Light

Despite our fair island containing some of the most glorious countryside and open space, the majority of us insist on living in a single corner. There are, no doubt, various complex reasons for concentration of our population, but as our numbers swell (along with sea levels) there is mounting pressure to generate more and more living and working space from the same portion of mud. The pressure is pushing land use in a very clear direction - skywards.

Of course, the UK has its fair share of ancient tall buildings - for example, St Pauls, the Satanic Mills and the four Graces in Liverpool - but never in our history has there been such pressure to maximise land use. Moreover, in this climate, landmark buildings, offices and multi-storey residential buildings are becoming ever taller to accommodate more people on the same footprint. Planning authorities are also acutely aware of their duty to facilitate the provision of new offices and homes to meet the targets handed out by central government. Click here to read more.

While modern methods of construction help architects to maximise height, neighbours more frequently find that these constructions maximise their loss of light.

It is established law that we all have a right to receive daylight through the windows of our homes and offices. A right accrues in a number of ways, being either expressly granted when the building was first built, or accumulated over time. When compared with other property rights, there have been relatively few high-profile attempts to enforce rights to light.

So, why are the courts beginning to fill with applications for injunctions to stop interference with light? Well, the typical building height is on the up - developers couldn't build the obelisks that we now see springing up all around us sufficiently cheaply to warrant their use in anything other than landmark projects. Add to this the fact that many disputes involving issues of light have, in the past, been settled long before court because the degree of interference caused to the light in question was relatively small.

Rulings in a number of reported cases have highlighted the right to receive light. This is good news for the individual; many of us are oblivious to our ancient property rights until they receive publicity in the daily paper. But for developers, commercial and residential alike, high-profile rulings of this nature are problematic; they risk hampering ambitious and well intended regeneration schemes by providing yet more ammunition to the NIMBY (Not in my Backyard) crowd.

Do these recent decisions enlighten, or cast a shadow over, developers and their looming projects?

The rulings in these cases reassert that an injunction is the proper remedy for someone whose light is interfered with. A developer who interferes with other peoples' rights to light faces the prospect of having to down tools or, in the worst- case scenario, bring down an offending building so as to re-establish the light.

This should not come as a great surprise - the draconian injunction has always been the normal means by which the courts will protect an individual's property rights. However, in legal circles it was felt there had been a shift in the courts favouring compensation as a remedy, unless the interference with an individual's light was severe. Some felt that the courts were beginning to acknowledge that developers play an important role in the regeneration of our towns and cities. In fact, the courts have clarified that unless a developer has acted entirely reasonably throughout a project, they will be held accountable. Developers will not be allowed to prevail over individuals' rights to light by assuming that the court will allow developers to pay for the interference post facto with compensation.

Rulings such as these frequently serve a different cause - that of the NIMBY brigade, intent either on protecting their own back yard without regard for the greater good served by developments or, worse, ransoming developers for their hard-earned profits.

Even the compulsory purchase route may not afford developers the protection they need. A recent ruling now suggests that while there is statutory protection from an injunction during the construction phase of a development, the subsequent use of a development which interferes with an individual's rights to light will constitute an actionable interference for which an injunction or compensation may be sought by individuals affected.

So can insurance help? Certainly, insurers are not going to insure a behemoth that will plunge neighbouring properties into pitch darkness. But, insurers can assist with those projects in which the degree of interference is not entirely unconscionable but the developer cannot risk the time, money or uncertainty of entering into lengthy negotiations with scores of adjoining owners, some of whom may have an agenda far less well-meaning than that of a developer looking to invest in an area and help regenerate it by providing new and exciting living and working space.

[Information required to provide a Rights to Light quote]
[link to Rights to Light case study]

Chancel Repair

Chancel Repair policies are on the rise especially as lenders are covering all aspects of their loan, areas they may have taken a view on in the past. It is a difficult risk to decide an amount to insure as it is not completely dependant on the property value but based on the anticipated amount to repair the Chancel end of a church. This calculation is made harder by the fact there is no standard definition of loss to the Church, only that the Chancel end be wind and water tight. I have attached a brief history below that describes this in more detail. First Title do not insist on providing cover for the full gross developed value of your property and as such will not include an averaging endorsement in the policy. If you are dealing with a £10 million development, unless the Chancel in concern is Old Westminster, it is highly unlikely you will need an indemnity limit anywhere near this amount. Some UK law firms have set a maximum level of cover they are comfortable with, explain this to their clients and if the property value is higher only insure up to this level. From an insurers perspective, if in the above situation a request was made to provide cover for the full £10 million, consideration would be given to the fact that a claim would be unlikely to reach this amount when working out the premium. However an insurers financial strength and security is calculated by looking at the amount they have insured and their premium income. For this reason an insurer would not simply charge the same premium for an indemnity level of £10 million as one for £1 million regardless of whether the risk was viewed to be similar. Click here for a history and more information about the Chancel area of the church.

[History of Chancel Repair]