Buying a property has some inherent risks which may cause loss or affect ownership of the property in the future. Some of these risks will be unknown at the time of purchase or are not always discoverable, but as with many risk situations, it’s possible to take out insurance to try and safeguard against some future potential loss. Title Insurance is sometimes suggested as a useful insurance measure but what is it and is it worthwhile taking out?
Generally, when you purchase property, except for the Statutory Disclosures that the seller must make, “Caveat Emptor” or “Buyer Beware” applies, meaning that the Purchaser should protect themselves by undertaking searches and enquires regarding the title of the property. To understand what Title Insurance is, it’s important to first understand what Title is. “Title” is typically defined in a Title Insurance policy as the ownership of interest in land and any structures on that land. Title Insurance therefore is a special type of insurance that provides cover against a defined set of risks to the ownership of your land and the structures on it, being those risks that are set out in the Title Insurance policy document. Title insurance is a one-off insurance policy that home buyers can take out on their future property prior to the settlement. The policy will cover the homeowner for the entirety of the ownership over the home. The policy will not be passed on to a new owner, the agreement will terminate once the policy holder sells that property.
What risks are covered by Title Insurance?
The following risks are typically covered if the circumstances giving rise to them existed before you took out the Title Insurance policy:
- Someone else claims to have rights affecting the title of your title because of forgery, fraud or mental incapacity;
- Someone else lodges a dealing which prevents your interest in the property being registered;
- Someone else claims an interest in the property under the Family Law Act;
- Someone else claims an interest in the property arising out of a Contract, a Lease or an Option;
- Someone else claims to have an easement or right of access that affects the property but is not recorded on the land title;
- There are unpaid Rates or Taxes which are a Charge on the property;
- There exists an adverse matter affecting the title which a current Survey Report would have disclosed; and
- A local authority prevents you from using your property or requires you to rectify or remove an existing structure (other than boundary walls or fences) because it contravenes planning laws or was built without approval.
Like all insurance policies, Title Insurance policies will contain a number of exclusions which will need to be read very carefully and advice taken about their meaning before deciding whether to take up Title Insurance.
It’s especially important to understand that Title Insurance policies DO NOT provide cover for destruction of or damage to a building on your land and Title Insurance is not the same as, or a substitute for, home building or home contents insurance. Common exclusions (i.e. things NOT covered) in the policies include:
- Things that are known to you at the date your purchase of the property settles (for example, it is already contained or disclosed in the Contract for Sale);
- Dilapidation or pest infestation of buildings and accordingly Title Insurance won’t provide cover for things discoverable in a pre-purchase Pest and Building Inspection report;
- Buildings that fail to comply with proper building standards (e.g. the Building Code of Australia); and
- Environmental contamination.
It is not a compulsory cover you need to take out as a homeowner as all homes are different and it is not the same as home and contents as it will not cover you for any damage caused by you as the owner. It will cover you for risks that you may not have been aware of prior to purchasing that can affect the use of your land such as illegal building works or incorrect boundaries, etc. If for any reason your property was affected by these and neighbours, council, public authority had started to see issues with these, your insurer would be able to step in and investigate any issues and assist with providing solutions to help resolve the matter.
The cost of this policy will vary depending on the purchase price of your home. It will also vary depending on which insurer you decide to go through. Although your conveyancer will be able to recommend providers and policies for you to take out on that property, it is always a good idea to get in touch with that insurer to learn more on what they can support you with if any property risks were to arise with the property you are looking to own.
At Ezystep Conveyancing we have extensive experience in advising and acting for Purchasers buying properties to use as their home or for investment. If you need advice about what’s involved in and the steps to take to protect your interests please contact our accredited property specialists on 4396 4895 or email info@ezystepconveyancing.net.au