Many times, the driver to purchase is a desire to cover a specific risk, such as a defect in a building permit, encroachment, restitution (particularly in CEE) and certain restrictions. It is, however, becoming more common to utilise Unknown Risk's title insurance.
Recent high profile cases in Europe highlight where, had title insurance been procured, lengthy and often costly legal battles could have been covered by a policy. A current example is the purchase of a tower in Milan by Blackstone from RCS in 20133. RCS claim that the transaction should be voided as they maintain Blackstone took advantage of the asset when RCS were facing financial difficulty.
Blackstone are accusing RCS of blocking it from selling the property last year and are seeking damages. RCS have launched arbitration proceedings under Italian law to annul the sale. This has come as a shock to property investors who claim that foreign investment in Italy could suffer as a result of this case and could cause uncertainty. Regardless of the outcome of the court proceedings, Blackstone’s legal fees are set to be significant.
Had an Unknown Risks Title insurance policy been procured in this case, the legal fees could have been covered and reimbursed to Blackstone. In the event that the sale is annulled by the courts, the policy is designed to pay out for loss in market value of the asset purchased.
This is just one of many cases that could have benefitted from an Unknown Risks policy. In the current economic climate, there will be new challenges faced around the disposal and acquisition of distress property assets, not only from transactions at an undervalue, but even perhaps the blocking of transactions by governments wanting to keep investment within the country – particularly if an element of bail out had been used.
Title insurance is well established in the US market with almost all property transactions requiring a policy but this is not the trend in Europe. Purchasers generally will look at the risks associated with a transaction and either price chip, accept the risk, or walk away. This is now becoming a tool for sellers to achieve the full value of the asset while providing comfort to buyers, ensuring that transactions are concluded quickly and without price chips for known title defects.
In the event that buyers are acquiring a portfolio of assets, Unknown Risks Title cover can be procured to cover unknown defects. This includes known defects for the whole portfolio – particularly in the event that there is a competitive bid situation where the speed of transaction is key as title Due Diligence (DD) is not necessarily needed on all assets, just a sample.
Not only can this type of insurance protect the property owner, it provides cover for lenders, leaseholders and successors in title, meaning that future transactions can be de-risked as well. Given the large amount of capacity in the title market, larger transactions can be covered with a single insurer providing ease and clarity in a claims scenario.