Traditionally, due diligence (DD) is undertaken on the titles to the properties which can take a long time and incur significant cost. The current Real Estate market is competitive for multi-asset portfolios and the length of time that DD takes can be a factor, especially if the seller needs to realise their capital – particularly in a distressed asset sale.
The title insurance market in the US has long been providing title insurance to cover known and unknown defects in title in place of full DD and this is now moving across the pond. Title insurance has grown in popularity in the UK and Europe over the last five years and portfolio title insurance is also becoming popular.
In the event that you are buying a portfolio of assets there are a number of things to take into consideration:
- Is this a bidding process, what can you do to enhance your bid?
- Where are the assets located and what will the cost of DD be, particularly in multiple territories?
- How many assets are there, how long will DD take?
Portfolio title insurance can help with all three questions. In bidding process, the bidder who can confirm that the transaction timeline will be very short, will be looked upon favourably, even if the financial offer is not as high – particularly in a distressed asset transaction.
In the event that there are multiple territories, portfolio title insurance can provide a solution to cover the known and unknown risks without having to engage lawyers in each territory to provide DD on the titles to the assets. This not only saves time, but money as well.
If there are hundreds or thousands of assets, full title DD may not even be an option. Portfolio title insurance can cover for financial loss even if DD is not undertaken.
What is portfolio title cover?
Portfolio title insurance is underwritten by most insurers and only a sample DD needs to be undertaken in order for cover to be available.
The policy will cover the buyer for most known and unknown title risks such as:
- Adverse Possession
- Access Issues
- Restrictive Covenants
- Services and Drainage Issues
- Easements
- Rent Charges
- Lack of Searches
- Unregistered Land
- Good Leasehold Title
- Mines and Minerals
- Encumbrances against the title
- Lack of Planning or Building Regulations
- Chancel Liability
The cover provided protects the buyer for as long as they own the assets and the following losses are covered:
- Loss in market value
- Legal and professional fees
- Settlement costs and damages
- Alterations to the asset that are required in the event of a claim
- Any other costs (with insurer agreement).
In summary, portfolio title insurance needs only a sample DD to put in place, the rates remain low and the coverage is broad. If you are looking at acquiring a portfolio of assets, this insurance should be taken into consideration to save money, time, de-risk the transaction and make your bid more attractive.
