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As most of you will know, legal indemnity policies traditionally cover the purchaser (and often their lender) against losses directly associated with third-party disputes arising from the title defect covered by the policy. 

These include legal costs incurred to defend or resolve a claim, or the cost of complying with any court injunction if our defence is unsuccessful. We also cover damages and costs awarded against our policyholder, and any reduction in the market value that the property suffers following a successful legal claim which prevents or alters the property. 

But for transactions that involve complex deal structures with extended development timelines and multiple stakeholders, we’re often asked to extend our cover beyond what’s normally covered. This can be because of the type of property or transaction itself, or to provide cover for additional parties with a financial interest. 

Extra cover for complex cases 

One of the most frequently requested cover extensions we receive is for business interruption costs, where reduced turnover and increased costs are incurred whilst a claim is being resolved. For example, if the insured property is a retail unit, an access dispute has the potential to prevent customers, staff and even deliveries from being able to get to the shop, causing it to temporarily close. Typically, this cover runs for up to 24 months following a claim. We can also cover the costs incurred for any fit-out works that have to be stopped, along with the cost of having to dismantle any fixtures and fittings to reinstate the property to its former state in the event of a successful legal claim against the insured.

Another popular policy extension provides cover where a court injunction relating to the insured title defect prevents the use of a leasehold property, but the policyholder is still contractually required to pay the rent due under the terms of their lease. Alternatively, a freeholder renting out their commercial property could suffer a loss in rental income if a claim on the policy leads to a court injunction preventing their tenant’s use of the property. Again, cover typically runs for a period of 24 months following the use being prevented.

Extensions of cover aren’t just available for existing commercial premises – developers can benefit from them too.  For example, we provide cover for contract penalties that may be incurred if an injunction prevents a development and the developer has to cancel contracts for the construction works. Similarly, if works on site are delayed or suspended, a developer can incur a range of additional expenses. This can include extra interest accrued on the finance necessary to fund the development, as well as wages and other staffing costs, which still need to be paid while work is halted.

Changing dynamics 

As well as covering purchasers and their lenders, our policies can also be extended to cover additional parties who may incur costs related to their works on a development site, or who have a financial interest in a proposed development. Service providers such as gas, electricity and telecommunications companies are prime examples. They could see their works disrupted or even prevented entirely if a legal dispute related to the title defect arises. For example, if a site is affected by restrictive covenants, or outstanding rights and easements in favour of third parties (such as a right of way or mining rights), any legal claim from the beneficiaries of these rights or covenants may prevent the installation works. 

Similarly, if the connection works are going to be on or under land where the owner is unknown and there are no legal rights of access and easements to install the services, the service provider will often request cover for losses should the true owner appear and attempt to prevent the works, or insist any works undertaken are removed. 

For these providers, cover can be extended to include any legal costs that the service provider may incur if they become directly involved in a dispute with the affected third party. We can also cover the abortive costs of any works already undertaken, the additional cost of dismantling and relocating the services, and reinstating the surface of the land to its former condition following a successful legal claim. 

The cost of doing business 

Increasingly, we are seeing requests to cover land promotors too. Under planning promotor agreements, they pay a landowner an upfront, non-refundable fee and take on the costs associated with putting together a planning application for the development of the land - engaging with planning authorities, residents and other stakeholder groups. If planning consent is granted, they will then arrange for the property to be marketed to prospective developers, and receive a final pre-agreed payment from the landowner once it is sold. 

So, if a third-party claimant successfully prevents the proposed development due to the insured title defect, e.g. by enforcing restrictive covenants, the losses suffered by the planning promotor won’t directly relate to the cost or value of the property itself as they are not the landowner. Instead, they will face abortive costs relating to professional advisors they have appointed, such as engineers providing technical surveys, or planning consultants assisting with the planning application, along with any marketing costs for the sale of the property. Importantly, it is also unlikely they will be able to claim a refund of the initial fee paid to the landowner, which can be significant – highlighting the value of the cover that we provide.

Option holders face similar risks. This party tends to be a developer who has signed a contract with a landowner for the right to purchase or lease a site within a set timeframe. Option holders stand to lose their upfront option fee and all expended costs associated with obtaining planning consent if a legal claim arises in relation to the insured title defect which prevents a development from going ahead.

For more information on the various extension of cover options that we can provide, get in touch with one of our expert underwriters by calling 01603 617617 or email enquiries@cli.co.uk.