Miscreants, mistakes and mindless acts of government: What Corporate Real Estate Professionals should know about Property Title
Issue 19 - Apr 06

Used to leasing occupational real estate, the specific risks involved in the acquisition of land and property in different Asian countries are often unfamiliar ground for many corporate real estate managers. Find out why Asia is one of the fastest growing markets for title insurance.

One of the key differences between the property markets of Asian countries is the risk associated with providing good and marketable title to the property. A "property title" is proof of ownership; including beneficial use of that property - to access, use, lease, mortgage and dispose of it, the latter usually taking place through a sale. Without title, many of these things cannot be done. Fortunately, however, there is insurance that covers against the risk that your title has some problem.

when threatens your title?
There are title risks inherent in any transaction: fraud and forgery, access rights, transfer issues, invalidity of documents (eg invalid powers of attorney, improperly executed or recorded documents, erroneous or inadequate descriptions of the property) and invalid or unenforceable mortgages or other encumbrances on title.

Asia has more than its fair share of horror stories: the multi-national company that had to move their entire factory when the Government requisitioned the land they thought they owned, the campus development with a title defect which means it cannot be sold, the building found to be encroaching on adjoining land. All of these defects have one thing in common: the cost and uncertainty they cause for the operation of the business.

Asia has more than its fair share of horror stories.

Title insurance can be used in any situation where a corporate is acquiring property. This could include both whwen the corporate buys land or property for investment or occupation (either single properties or portfolios) and when the corporate is acquiring or taking a major share in another business with significant real estate on their balance sheets.

proving it's yours
Proving title is a very different exercise in different jurisdictions. It is dependant on many things such as whether:
▪ There is a common law or civil code legal system
▪ The country operates a registered title system or a deeds registration system
▪ Government registers are up to date, accurate and accessible
▪ Government offers an indemnity to owners if that information was ultimately incorrect

No country in the world provides full indemnity for all title risks. Even in markets such as the UK and Australia, which have Government guaranteed registries, specific issues such as spousal rights and some types of fraud are not included in teh indemnity. The table describes some of the major risks in key Asian markets.

Typically, one third of title insurance claims globally are for fraud, one third for Government issues (such as where the Government overturns a title because it was not technically correct) and the remainder are technical defects such as legal misdescription, breach of occupation permit, prior encumbrances on title, unenforceable mortgages, etc. This is a fairly good proxy for the spread of property title risk that corporates will encounter here in Asia.

what to do if your title is defective
In the absence of a Government guarantee on title, the only potential remedy is to sue your lawyers for negligence, and this is usually difficult to establish and prove. Furthermore, the negligence remedy will only be of value if the lawyer is backed by adequate professional indemnity insurance, which may not be the case in less developed countries. Supporting opinions from international lawyers will generally contain express limitations on liability to the effect that they are not liable for any negligence on the part of the local lawyer who vouched for the title to the property.

In simple terms, risk in property transactions has to be borne or apportioned between one or more parties, whether that is the buyer, the vendor, the Government, or a combination.

you don't have to bear the risk
Title insurance can add value by taking the risk away from the parties to the transaction and is an internationally recognised means of covering the title risk in property transactions. It was initially devised in the United States and is now used widely throughout Canada, South and Central America, Europe and Asia. Asia is one of the fastest growing markets for title insurance.

Title insurance can be used in any situation where a corporate is acquiring property. This could include both when the corporate buys land or peroperty for investment or occupation (either single properties or portfolios) and when the corporate is acquiring or taking a major share in another business with significant real estate on their balance sheets.

The standare cover provided by title insurance is that the real estate is owned free from defects in any documents discoverable from the public records. This would include, for example:
▪ Defects in the title to the property as a result of fraud, forgery or undue influence,
▪ Defects in the title, such as previous mortgages, which have not been paid off and discharged, documents not properly signed or executed, missing deeds or misdescriptions of the property, rights of way over the property or encroachments on adjoining land
▪ Someone other than the named owner having rights to the property arising out of a lease, tenancy agreement, contract or option

defence and property value
Loss suffered as a result of the covered risk will be borne by the insurer up to the value of the specified insurance amount: generally the value of the property. One fundamentally important feature of a title insurance policy is the title insurer's duty to defend the title. If a third party claims some kind of interest int he property the title insurer will deal with the third parties challenge to the title. Roughly 50% of all costs of handling claims incurred by the title insurance industry are in relation to this duty of defence. In the event of a claim there is no need to prove negligence against your solicitor or anyone else - it is no-fault based policy.

Premiums are assessed on a policy-by-policy basis dependent upon the specific risks insured. The premium is a single payment upon acquisition of the property and the insurnace endures for the entire period of ownership (or in the case of lenders' policies, of the loan). The title insurer's underwriters work with the client's legal advisors to minise costs. This enhances traditional due diligence and provides the corporate with a comprehensive level of security. RFP

Alison Cooke is CEO of First American Title Insurance Company, Hong Kong.
First American Title Insurance Company has been in the title insurance business insce 1889. It is a wholly owned subsidiary of the First American Corporation.

Title insurance can be used in any situation where a corporate is acquiring property. This could include both when the corporate buys land or property for investment or occupation (either single properties or portfolios) and when the corporate is acquiring or taking a major share in another or taking a major share in another business with significant real estate on their balance sheets.

One fundamentally important feature of a title insurance policy is the title insurer's duty to defend the title.

There are title risks inherent in any transaction: fraud and forgery, access rights, transfer issues, invalidity of documents.

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