Insurance in insolvency transactions - the way forward?

First Title Insurance recently issued a press release confirming its provision of a tailored title insurance policy to facilitate the purchase of Dawnay Day’s UK portfolio of 221 commercial property assets. The deal was unique in that it was the first time that title insurance was used by Receivers not only to make the sale of a portfolio of distressed property assets more attractive to potential purchasers but also to reduce recovery costs.

Typically no title warranties are given by administrators or receivers when disposing of distressed property assets and these assets are usually sold at knocked down prices. The policy overcame the lack of vendor’s title warranties by guaranteeing title for the purchaser, F&C REIT Asset Management and its shareholders, thus ensuring that they avoided having to take a view on known and unknown title issues.

Through the creation of a bespoke policy, they enabled the legal due diligence element of this complex transaction to take place more quickly and efficiently. A title sampling approach was used which was completed in a matter of days and which meant that the deal’s lawyers avoided the time-consuming process of trawling through every title document. The Receivers and BDO Stoy Hayward additionally benefited from including the policy premium as an allowable expense in its recovery costs, another first for insolvency transactions of this nature. Admittedly Receivers and Administrators would need to weigh the costs against the benefits of obtaining title insurance in each transaction. However, in theory this is another innovative weapon in the armoury of legal and insolvency practitioners which arguably should be considered as the way forward for large insolvency transactions with property assets.

For more information in relation to buying property from an Administrator and title warranty see our previous Law-Now, What to expect when buying property from an administrator.