What Is a Defective Title?

Buying or selling a property with a defective title can create significant problems during the conveyancing process. A title defect can affect whether a property has a good and marketable title, whether a buyer can obtain a mortgage, whether the property can be sold in the future and whether a third party could potentially assert rights over the property.

In some circumstances, defective title insurance — also known as title indemnity insurance, legal indemnity insurance or property indemnity insurance — can provide a practical way of managing the financial risk associated with a known title defect.

But what exactly is a defective title? What is defective title insurance? And what does a defective title insurance policy normally cover?

This guide explains the basics for property owners, buyers, sellers, landlords, developers and anyone involved in UK property conveyancing.

Important: This article provides general information about property law and conveyancing in England and Wales. A defective title is highly fact-specific, and the terms of any insurance policy should always be checked with a suitably qualified solicitor or conveyancer.

What Is a Defective Title?

A defective title is broadly a property title that contains a legal defect, missing right, uncertainty or other issue that means the owner may not have the clear and marketable title normally expected in a property transaction.

In practical terms, a title may be considered defective where there is a risk that:

• someone else has a legal interest in the property;

• the owner does not have a necessary legal right;

• a restriction or covenant affects the use of the property;

• an important document relating to the title is missing;

• the property’s boundaries are uncertain;

• there is uncertainty over ownership of part of the land;

• a right of way has not been properly documented;

• access to services is not legally protected;

• a restrictive covenant may be enforceable;

• historic conveyancing documentation contains an error or omission; or

• another legal issue could adversely affect the property’s value or the owner’s ability to use, sell or mortgage it.

A defective title does not necessarily mean that the owner does not own the property.

Instead, it means there is a particular legal risk or uncertainty associated with the title.

LexisNexis describes a defective title as a title that is not “good and marketable” or where there is a risk that a third party could establish an interest adverse to the title. (LexisNexis)

What Is a Good and Marketable Title?

During a property transaction, a buyer’s solicitor will generally want to establish that the seller can provide a good and marketable title.

The Law Society’s approved certificate of title is designed to confirm to a mortgage lender, among other things, that there are no legal problems with the property and that it has a good and marketable title. (Law Society)

A title defect can therefore become particularly important when a property is being sold or mortgaged.

For example, if a property appears to have no legal right of access from the public highway, a buyer may reasonably ask:

“How do I legally get to my property?”

If there is no satisfactory documentary evidence of the right, this could create a title problem.

What Is Defective Title Insurance?

Defective title insurance is a form of legal indemnity insurance designed to protect against financial loss arising from a particular identified defect or legal risk affecting a property title.

It is sometimes called:

• defective title indemnity insurance;

• title indemnity insurance;

• title insurance;

• legal indemnity insurance;

• property title insurance; or

• conveyancing indemnity insurance.

The precise terminology varies, but the underlying principle is generally the same: the policy provides financial protection against a specific insured risk.

A defective title insurance policy does not normally repair or correct the underlying title defect.

Instead, it provides an indemnity if the insured risk materialises and causes a covered financial loss. (LexisNexis)

This distinction is extremely important.

Defective title insurance does not make a defective title perfect

If a property has a missing right of way, buying an indemnity policy does not magically create the right of way.

If a restrictive covenant is potentially enforceable, insurance does not remove the covenant.

If a historic deed is missing, insurance does not recreate the deed.

Instead, the insurance is intended to provide financial protection against the consequences of the identified problem.

Why Is Defective Title Insurance Used in Conveyancing?

A title defect can potentially cause a property transaction to become complicated.

For example, a buyer may be concerned that:

“If I buy this property, could somebody else challenge my rights?”

A mortgage lender may also be concerned about the property’s value and the security supporting the mortgage.

A title defect could therefore lead to:

• additional legal enquiries;

• delays in the conveyancing process;

• negotiations over the purchase price;

• a requirement for the seller to resolve the defect;

• a requirement for indemnity insurance;

• difficulty obtaining mortgage finance; or

• a buyer deciding not to proceed.

LexisNexis notes that a title defect can affect property value and may make a lender more reluctant to finance the purchase. (LexisNexis)

Where the risk is suitable for insurance, a defective title indemnity policy can sometimes allow the transaction to proceed without attempting to resolve an historic defect that may be difficult, expensive or impossible to cure.

What Does Defective Title Insurance Normally Cover?

There is no single standard defective title insurance policy that covers every possible title defect.

The cover is normally tailored to the specific legal risk identified during the conveyancing process.

Common examples can include the following.

1. Missing Rights of Way

One of the most common types of title problem involves rights of way.

A property may physically have access to a road, but the documentary evidence proving the legal right of access may be missing, unclear or defective.

A defective title insurance policy may provide cover if a third party challenges the insured’s right to use the access.

The policy may potentially cover financial losses arising from the inability to exercise the insured right, subject to its terms and conditions. (LexisNexis)

2. Missing Rights to Services

Properties need access to services such as:

• water;

• electricity;

• drainage;

• gas;

• telecommunications; and

• other utilities.

Sometimes the property uses services passing through neighbouring land but the legal documentation establishing the necessary rights is incomplete.

Title indemnity insurance can sometimes be used to protect against the financial consequences of such a defect.

3. Restrictive Covenant Problems

A restrictive covenant is a legal obligation restricting how land can be used.

For example, a covenant might restrict:

• building an extension;

• carrying out certain alterations;

• using a property for a particular purpose;

• carrying out commercial activities; or

• constructing additional buildings.

If there has been a potential breach of restrictive covenant, defective title insurance may sometimes be available.

A policy can potentially protect against financial loss arising from enforcement of the insured covenant risk.

However, a restrictive covenant insurance policy does not normally remove the covenant itself.

4. Missing Deeds and Documents

Older properties can sometimes have missing conveyancing documents.

A missing deed may contain important information about:

• ownership;

• rights of way;

• covenants;

• boundaries;

• easements;

• rights to services; or

• other property rights.

Where the missing document creates a specific legal risk, missing deed indemnity insurance or another form of title indemnity policy may potentially be available.

5. Boundary Problems

A property title can sometimes contain uncertainty concerning the precise boundary between neighbouring properties.

This can be particularly relevant where:

• fences do not correspond with the title plan;

• historic transfers contain inconsistent descriptions;

• land has been occupied differently from the documentary title;

• a strip of land appears to have been included incorrectly; or

• there is a dispute concerning ownership.

Depending on the circumstances, a suitable policy may provide financial protection against an insured boundary risk.

However, boundary dispute insurance is not necessarily appropriate where there is already an active dispute or where the issue needs to be resolved rather than insured.

6. Adverse Possession Risks

Adverse possession is another potential area where title indemnity insurance can arise.

For example, someone may have occupied or used land for a considerable period without the documentary title clearly reflecting that position.

Where there is a risk that another person could assert rights over land, specialist insurance may sometimes be considered.

The precise availability of cover will depend on the circumstances and underwriting requirements.

7. Chancel Repair Liability

Historically, chancel repair liability was another type of property risk for which indemnity insurance could be obtained.

This relates to the possibility of liability to contribute towards the repair of a church chancel.

The relevance of this issue depends upon the property’s location, title and circumstances, and specialist legal advice may be appropriate.

8. Other Title Defects

Defective title insurance is not limited to one particular category.

Specialist policies may be available for a wide range of property title problems, including certain:

• easement defects;

• rights of access issues;

• restrictive covenant risks;

• missing documentation;

• boundary issues;

• ownership uncertainties;

• adverse possession risks;

• historic conveyancing defects; and

• other legal defects affecting property.

The key point is that the insurance policy must be read carefully.

A policy covering one specific title defect does not automatically cover every other problem discovered with the property.

Does Defective Title Insurance Cover Planning Permission?

It can, but planning indemnity insurance is usually treated as a separate type of legal indemnity insurance designed for a particular planning risk.

For example, specialist policies can sometimes cover:

• lack of planning permission;

• breach of planning conditions;

• certain planning enforcement risks;

• lack of building regulations approval; or

• other specific planning-related risks.

However, a defective title policy should not automatically be assumed to cover planning permission problems.

The policy wording determines what is insured.

This is an important distinction when buying a property with an extension without planning permission, an unauthorised building, a loft conversion without building regulations approval or another historic alteration.

Does Defective Title Insurance Cover Building Defects?

Normally, no.

Defective title insurance is primarily concerned with a legal or title risk rather than the physical condition of the building.

For example, if an extension has defective foundations, damp, structural movement or poor workmanship, that is generally a building condition issue, not a defective title issue.

A building survey is therefore not replaced by title insurance.

The Law Society recommends that buyers consider obtaining an appropriate survey so they are informed about the physical and structural condition of the property. (Law Society)

This is one of the most important differences between:

property insurance — physical damage;

building survey — physical condition;

defective title insurance — specific legal/title risks.

What Does a Defective Title Insurance Policy Usually Pay?

The exact financial protection depends on the policy.

A defective title insurance policy may typically provide cover for certain losses connected with the insured defect, which can potentially include:

• diminution in property value;

• damages or compensation payable as a result of the insured risk;

• legal costs;

• defence costs;

• enforcement-related costs;

• settlement sums;

• certain costs associated with protecting the insured title; and

• other losses specifically covered by the policy.

LexisNexis identifies diminution in value, settlement sums and defence/enforcement costs among the types of losses that can be covered by defective title insurance, depending on the policy. (LexisNexis)

The policy schedule and wording are therefore critical.

Who Is Protected by Defective Title Insurance?

Depending on the policy, cover can potentially extend to:

• the property owner;

• the buyer;

• a mortgage lender;

• successors in title; and

• other specified interested parties.

The exact insured parties should always be checked in the policy documentation.

This is particularly important where a property is being purchased with a mortgage because the lender may require protection against the relevant title defect.

Is Defective Title Insurance a One-Off Policy?

Generally, yes.

Unlike ordinary home insurance, which is commonly renewed annually, many property indemnity policies are purchased with a single premium and are intended to provide continuing cover for the insured risk, subject to the policy terms.

The policy can potentially remain in place when the property is subsequently sold, depending upon its wording and the circumstances.

However, it should never be assumed that a policy automatically transfers to every future owner.

The policy should be checked to establish who is insured and whether successors in title are included.

How Much Does Defective Title Insurance Cost?

There is no universal price.

The premium depends on factors such as:

• the property’s value;

• the type of title defect;

• the nature of the legal risk;

• the potential financial exposure;

• whether a mortgage lender is involved;

• the circumstances in which the defect arose; and

• the insurer’s underwriting requirements.

Some policies can be relatively inexpensive compared with the value of the property, while more complex risks can attract substantially higher premiums.

The important point is that the cheapest policy is not necessarily the best policy.

The cover needs to match the actual risk.

Can You Get Defective Title Insurance After a Problem Has Been Discovered?

Potentially, yes — but timing is extremely important.

Insurers will generally want to know the circumstances surrounding the defect and whether the risk is already known.

A policy is intended to insure a defined risk; it is not generally a mechanism for retrospectively covering a problem that has already materialised.

There can also be strict requirements concerning communications with third parties.

For example, where an issue concerns a restrictive covenant, planning breach or another potential enforcement risk, contacting the person or authority who could enforce the issue may affect the availability of insurance.

This is why you should speak to your conveyancer or solicitor before contacting the relevant third party if you are considering indemnity insurance.

Does Defective Title Insurance Fix the Title?

No.

This is perhaps the most important thing to understand.

Insurance protects against financial consequences.

It does not normally cure the legal defect.

For example, suppose a property has a missing legal right of way.

The solicitor might identify two possible solutions:

Option A — resolve the title defect

Attempt to obtain a formal deed, declaration or other legal document establishing the right.

Option B — insure the risk

Obtain an appropriate title indemnity policy protecting against specified financial consequences if the right is challenged or cannot be exercised.

Which option is appropriate depends on the circumstances.

LexisNexis specifically notes that a defective title indemnity policy does not remedy the underlying title defect; it indemnifies against the loss arising from it. (LexisNexis)

Why Would a Buyer Use Insurance Instead of Fixing the Title?

There can be several reasons.

The original parties to an old deed may no longer be traceable.

A historic document may be impossible to recreate.

A neighbour may refuse to enter into a deed.

Obtaining retrospective consent may be expensive.

The legal issue may be technically complicated.

Or the buyer and lender may simply want the transaction to proceed without prolonged negotiations.

Where the risk is insurable, a legal indemnity insurance policy can therefore be a practical conveyancing solution.

What Does Defective Title Insurance NOT Usually Cover?

It is equally important to understand the exclusions.

A policy will generally not provide unlimited protection against every problem associated with a property.

Depending on the policy, exclusions or limitations may apply to:

• matters not specifically identified as insured risks;

• known disputes;

• deliberate acts by the insured;

• matters disclosed to the insurer but excluded from cover;

• physical defects;

• ordinary property maintenance;

• future alterations;

• new breaches created after the policy begins;

• losses outside the policy definition;

• certain environmental risks;

• issues caused by the insured’s failure to comply with policy conditions; and

• circumstances where the insured contacts or negotiates with a third party without the insurer’s consent.

The precise exclusions vary considerably between policies.

Why Should You Never Assume “It’s Insured”?

Because not all defective title insurance policies are the same.

Two properties could have apparently similar title defects but require completely different insurance policies.

For example:

Property A: missing right of way.

Property B: breach of restrictive covenant.

Property C: missing deed.

Property D: possible adverse possession.

Property E: historic planning breach.

Each could require different insurance wording.

A good conveyancing solicitor should therefore identify the precise defect and consider whether the proposed policy actually addresses the relevant risk.

What Happens if the Title Defect Causes a Loss?

If an insured event occurs, the policyholder would normally need to notify the insurer and follow the policy’s claims procedure.

The insurer will then assess whether:

1. the event falls within the insured risk;

2. the policy is still in force;

3. the claimant is an insured party;

4. the loss falls within the policy;

5. any exclusions apply; and

6. the policy conditions have been complied with.

The insurer may then consider the appropriate payment or other response under the policy.

This is why keeping the original title indemnity insurance policy, schedule and supporting documents is important.

What About HM Land Registry Indemnity?

There is another form of indemnity that should not be confused with private defective title insurance.

HM Land Registry operates a statutory indemnity scheme under the Land Registration Act 2002 for certain losses resulting from mistakes in the register and other specified circumstances. HM Land Registry’s current Practice Guide 39 explains the circumstances in which rectification and statutory indemnity may apply. (GOV.UK)

That statutory scheme is different from purchasing a private defective title indemnity policy from an insurer.

In other words:

HM Land Registry indemnity ≠ private defective title insurance.

The circumstances in which either may apply are different.

Defective Title Insurance and Conveyancing

Defective title insurance has become an important tool in modern property conveyancing.

During the conveyancing process, a buyer’s solicitor investigates the title and raises enquiries.

If a defect is discovered, the solicitor may advise that the issue needs to be:

• resolved;

• investigated further;

• accepted by the buyer;

• covered by indemnity insurance; or

• considered unacceptable to the buyer or mortgage lender.

The correct solution depends on the individual circumstances.

Common Examples of Defective Title

Here are some examples of situations that can potentially result in a defective property title:

Example 1 — Missing Right of Way

A house is physically accessed across a private road, but the title documents do not clearly establish a legal right to use the road.

This could create a defective title issue.

Example 2 — Missing Right to Drainage

A property has drainage pipes running through neighbouring land but the title does not clearly document the necessary rights.

A legal indemnity policy may potentially be considered.

Example 3 — Restrictive Covenant

A property owner has built an extension despite a historic restrictive covenant restricting building works.

A breach of restrictive covenant indemnity policy may potentially be available, depending on the circumstances.

Example 4 — Missing Deed

An old transfer or conveyance referred to in the title cannot be located.

If the missing document creates uncertainty about the owner’s rights, a title indemnity solution may potentially be available.

Example 5 — Boundary Uncertainty

The physical boundary appears different from the documentary title.

Depending on the circumstances, this may create a title defect requiring investigation or potentially insurance.

Final Thoughts: Is Defective Title Insurance Worth Having?

A defective title can sound alarming, but it does not necessarily mean that a property cannot be bought or sold.

In many cases, the issue can be investigated and resolved.

Where a defect cannot reasonably be corrected, defective title insurance can sometimes provide a practical way of managing the financial risk and allowing a property transaction to proceed.

The key is understanding exactly what the defect is and exactly what the insurance covers.

A good policy should be considered in the context of the specific property, the title defect, the buyer’s circumstances and any mortgage lender requirements.

Most importantly, remember:

Defective title insurance does not normally make a defective title legally perfect.

It is a financial safety net for a particular legal risk.

For anyone buying, selling or remortgaging a property with a defective title, missing deed, missing right of way, restrictive covenant, boundary issue, easement problem or other title defect, obtaining specialist conveyancing advice before proceeding can help establish whether the defect should be corrected, accepted or insured.