It can help protect your investment and safeguard you against potential financial losses caused by legal matters impacting either the use of a property, or the ownership of a property. There are two main policy options that should be of interest to buyers of commercial real estate:
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‘Unknown Risks Cover’, provides cover for title issues that existed at the time the property was acquired but were unknown at that time. This is the most common form of title insurance.
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‘Known Risks Cover’, should be considered if a specific title issue or defect affecting the property has been identified.
Key risks that can be covered include:
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Unknown Risks Cover
This is the most common form of title insurance. Cover is provided by way of a set insured perils, otherwise known as insured events, designed to protect against risks that affect either the (i) use of the property (ii) title to the property and/or (iii) title to shares and units in a property-owning company or trust.
It responds to matters that existed at the time the property was acquired but were not revealed by searches, enquiries or other due diligence that was conducted prior to completion. For example, an unknown third-party right or encumbrance that was not disclosed during enquiries but causes the buyer financial loss after completion.
It can therefore help buyers to proceed with the peace of mind that their investment will be protected against certain matters that are not known about or may have been missed during due diligence.
Known Risks Cover
Known risks are a common feature in commercial real estate transactions. Planning issues, boundary discrepancies, third party rights and other legal risks are often discovered. Dealing with these issues can be challenging, and in some cases, not possible at all using the conventional approaches.
What are the usual options to deal with known risks, and their limitations?
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Seek an indemnity from the seller Can be rejected, limited, or of little value. |
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Rectify the issue prior to completion Can be time-consuming, expensive, or not possible at all. |
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Reduce the sale price Can create deal friction and may be resisted, or denied entirely. |
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Buyer walks away The transaction doesn’t proceed. |
‘Known Risks Cover’ can be a useful alternative when the above options may not be suitable, or possible. It can be used to ring-fence specific known legal risks, allowing buyers to enter a transaction with certainty.
Other key benefits of the Known Risks Cover include:
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If you have any questions or would like to learn more about how title insurance cover can support your clients, please don’t hesitate to get in touch with the title insurance team.
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The examples provided are for illustrative purposes only and do not guarantee coverage. Actual claims are assessed individually and subject to the terms and conditions of the relevant policy. Any product information discussed in this blog is subject to the terms and conditions of the policy, eligibility criteria, any additional premium for optional cover, limitations and exclusions.
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The information contained in this blog is intended for licensed insurance brokers and other authorised intermediaries only. DUAL issues insurances on behalf of Certain Underwriters at Lloyd’s of London and/or Allianz Australia Insurance Limited, acting as their agent. The information is of a general nature and does not take into account the objectives, financial situation or needs of any person. It is intended for the use of professional intermediaries who are expected to consider whether it is appropriate for their clients. Before recommending or offering any insurance product, intermediaries should read the policy wording, relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) and assess whether the product is suitable for their client’s circumstances. These are available on request or via our website at DUAL Australia.