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The standard losses typically picked up by our policies include legal costs incurred to defend or resolve a claim; or if the defence is unsuccessful, the cost of complying with any court injunction. We also cover damages and costs awarded against our policyholder, abortive costs relating to any construction works undertaken, and any reduction in market value that the property suffers following a successful legal claim which prevents or alters the proposed development. 

Anything but standard

While losses arising from those standard issues will always form the foundation of the cover we provide for commercial properties and development sites, we also regularly receive requests to extend our cover. As an example, we often receive requests for cover for losses that can be incurred, either by additional insured parties involved in the transaction, or because of the type of property or transaction itself, such as the freeholder of a commercial property. 

For commercial property transactions involving business premises, the most commonly requested cover extension 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 any abortive fit-out costs incurred, 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 claim.

Liability to pay rent is another popular policy extension for a commercial premises. This covers the scenario where a court injunction relating to the insured title defect e.g. a breach of restrictive covenant, 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 be exposed to a loss in rental income if a claim on the policy leads to a court injunction, which prevents their tenant’s use of the property. Again, cover typically runs for a period of 24 months following the use being prevented.

Developing trend

Developers often request us to extend the cover provided by our standard policies to suit their particular requirements.  For example, we are often asked to 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 work on a development site is 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.

The more the merrier

We have seen an increase in the number of enquiries where we are asked to extend cover to include additional parties with a financial interest in a proposed development, or to cover those who may incur costs related to their works on a development site. 

Prime examples of this are gas, electricity, and telecommunications providers, who will be concerned when a piece of land within or immediately next to a development is affected by a title defect and is also required for laying connecting pipes or cables. For example, if this land 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 undertaken by a service provider on 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. 

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, along with reinstating the surface of the land to its former condition, following a successful legal claim. 

The costs of promotion

These days, we are increasingly being asked to cover land promotors. 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. They will also engage with planning authorities, residents and other stakeholder groups throughout the application process. 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 promoter 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 will 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.

Similar abortive costs can also be incurred by an option holder. This party tends to be a developer who has signed a contract with a landowner, giving them the opportunity to purchase or lease a site from the landowner within an agreed time frame. Should a legal claim arise in relation to the insured title defect which prevents a development taking place, the option holder will lose their upfront option fee, together with costs associated with obtaining planning consent.

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 761515 or email enquiries@isisconveyancing.co.uk.