There is an increasing trend in the Australian property market for conveyancers on residential transactions to offer title insurance protection as part of the property transaction. As Australian Torrens (and strata) title provisions provide great certainty to purchasers in terms of ownership, is such additional insurance cost necessary? In this article we explore title insurance as it relates to simple residential property transactions (usually where one individual is selling to another individual), rather than title insurance as it relates to corporate property deals.
What is title insurance?
Title Insurance provides purchasers of property an indemnity for unexpected costs associated with illegal (unapproved) building works, boundary encroachments, errors on property searches and fraud or forgery for the life of the purchasers’ ownership of the property, for a one off premium payment. Premiums are relatively low (less than .1% of the purchase price) which may make this cover an appealing “sleep easy” protection for people who are often investing in their largest asset when purchasing a property.
Why not simply rely on due diligence?
On face value, many of the protections provided by title insurance can be managed via additional due diligence being undertaken at the time of purchase as many of the perceived risks may not exist depending on the property being purchased.
However, issues can arise as a result of limited information from the seller (especially if they were not residing at the premises), there are errors within pre-purchase searches or enquiries or indeed, if time is of the essence and there is no time for further due diligence to be undertaken.
What are some of the common issues which arise post-purchase?
Perhaps the most common claims under title insurance policies are those surrounding
unapproved renovations, lack of planning approvals and unpaid rates or charges by the previous owners. Claims relating to the former can exceed tens of thousands of dollars and affect the overall market value of the property in question.
What are the concerns?
The concern is that the product is often marketed to homeowners by their own conveyancers, who are acting as a trusted advisor to the purchaser and would be expected to conduct full diligence searches and checks as part of their report on title.
In addition, Conveyancers will generally receive some payment from the insurer for each referral they make, which incentivises them to suggest to their client that this additional insurance is worth considering.
Purchasers are likely to take the advice of their conveyancer throughout the process given they are reliant on their expertise. This gives rise to the question of whether this a conflict for the conveyancer, especially if any incentive is not disclosed?
If purchasers have the time to complete full and thorough due diligence, they should consider whether there are risks in relation to their specific circumstances. If not, perhaps title insurance is not going to provide any benefit in the long term.
There is no doubt that title Insurance does provide peace of mind when completing a transaction. Prospective purchasers should consider their own specific circumstances and seek independent advice on whether or not such insurance is required in their specific circumstances. When recommended such insurance by their conveyancer, purchasers should consider whether or not this recommendation is based on a specific need, whether there is time for further enquiries to be undertaken or, if this recommendation is driven by the additional revenue the conveyancer will receive in selling you insurance.
