In producing this guide I am reminded of the best advice I ever received on explaining the benefits of title and property insurance. The advice came from an Australian customer who had a refreshingly direct approach to life. He let me talk for a full forty minutes about all manner of company matters, legal process and product attributes.
So many questions, so little time.
His response was “very interesting, sounds like a good company with excellent products and you seem like a nice guy, but can you please tell me how it will help my business make more cash than it already does?” With these words still ringing in my ears I have made sure that this guide is short (about a ten minute read) and truly useful in identifying how title and property insurance can help you operate more profitably in the European market.
Phillip Oldcorn CEO, First Title Insurance plc
Six real-world examples of First Title in action At First Title* our customers include many of the world’s largest developers of business parks, retail parks, hotels and offices, many of the largest private and institutional investors, leading fund managers, private equity and traditional bank lenders. Here are just some of the examples of how First Title made a difference to our clients’ property transactions, and what our clients said about First Title helping them to improve their cash flow, save time and money, and prevent third party claims and financial penalties:
A Law Firm Law firms regularly undertake large-scale due diligence when their clients are bidding for development or investment opportunities involving significant numbers of properties. Not only is the due diligence process time consuming, it can also be costly for the client with substantial legal fees involved.
“My clients do not want to get into a bidding situation where, if unsuccessful, there could be significant wasted due diligence costs at stake – much better from a cost and time perspective to have First Title make an offer to insure” Nigel Heilpern, Fried Frank Harris Shriver and Jacobson (Law Firm)
A Corporate Finance Deal Successful securitisation depends on good ratings and speed. First Title provided title insurance for Europe’s largest ever CMBS transaction, a %5.4 billion purchase of a 164,365 apartment portfolio in Germany. This played a crucial role in enhancing the rating for the CMBS vehicle and ensured that the deal closed months earlier than would otherwise have been the case.
Fitch, Standard and Poor’s and Moody’s all considered title insurance to be a key mitigant and transaction strength. Presale Reports 10 July 2006
A Commercial Lender Lenders need to know that they will have a valid, enforceable mortgage with first priority over the security. In a recent multi-million euro sale of a commercial property portfolio, there was real danger that a third party could challenge this priority due to missing mortgage certificates. Using title insurance, First Title not only provided protection for the lender but also enabled the deal to close within days, avoiding substantial financial penalties for one of the parties involved.
“Without First Title’s speedy intervention, the problem would have taken considerable time and expense to resolve” A world-leading financial services company (Commercial Lender)
A Property Investor It’s important to the private or institutional property investor that there are no ownership issues that can affect the eventual sale of the property or any subsequent refinancing. First Title provided title insurance coverage of the USD 100 million acquisition of the Marriott Hotel building in Warsaw. Restitution and conveyancing title defects severely hampered the property transaction, but First Title provided a rapid and creative solution that facilitated both the acquisition and financing of the property.
“First Title’s insurance policy provided us with added comfort that our lawyer’s due diligence report was not capable of providing alone.” Mariusz Bres, Lilium
A Property Developer Buying land or property, developing it and selling it on as speedily as possible is of paramount importance to the developer. The quicker the process, the more the developer can maximise their profit. The incidence of title problems can often delay the acquisition of sites making title insurance an important tool for the developer.
“Using First Title to insure against identified title problems has helped the Dandara Group of Companies to complete the acquisition and development of several sites.” The Dandara Group (Property Developer)
A Fund Manager Certainty of ownership to fulfil fiduciary obligations and title representations and warranties that can be relied on are key issues for fund managers. It’s important that as assets are sold, all the funds are released to investors as quickly as possible. A European property fund purchased three properties in Bucharest. It was their first ever transaction in Romania and, due to its scope and size, title insurance was purchased to protect themselves from unexpected third party challenges against defects in title, ranging from fraud and forgery through to known risks. This speeded up the property transaction and provided title representations and warranties cover to facilitate a clean exit in the event of a future sale.
“Mitigating risk should be part and parcel of all property transactions, and protecting assets from issues as potentially debilitating as title defects should be a necessity.” Andrei Diaconescu, Capital Partners
First Title saves costs and adds value By taking a more innovative approach to title insurance we are able to provide a range of solutions that can help cash flow management, save time and money and provide protection against additional substantial costs.
Helping Cash Flow Management Buying land or property, developing it and selling it on as quickly as possible is vitally important to the cash flow of the property developer. The quicker land or property can be developed, the sooner the development can be sold and turned into cash. Depending upon the state of the property market, a quick turnaround of a development also gives the developer the potential to maximise any profit opportunities. The following uses of title insurance can help to speed up the process of acquisition and development, and help the developer market the completed units as soon as possible: • Commercial and Residential Developments – cover can be provided on both a pre and post-planning basis, with pre-planning
provided where a site is being acquired unconditionally and requires insurance for a title problem when contracts are exchanged. • Known Risks – protection against known risks only, but with the additional benefits of a simple policy document and an element of consequential loss cover. • Unknown Title Defects – protection against such issues as fraud and forgery, and many other possible defects that may not be evident in the normal due diligence process. • Developer Indemnity – this acknowledges that a significant element of exposure to loss is determined by the value of the land, which will not increase significantly until planning consent is obtained. We also offer a range of other non-title products that are designed to specifically help developers. See the section of this booklet titled Providing protection against physical, financial and non-title legal risks.
Saving time and costs Due diligence can be an expensive and time-consuming process when there are a large number of properties involved in a transaction. By helping to avoid repeated title investigation, title insurance can save legal costs and speed up the whole process, and often helps to close deals that would otherwise have stalled. • Property Portfolios – used to manage the level of due diligence where there are a significant number of properties involved, by applying a sample-based approach to due diligence. Using title insurance means that large portfolios can be reviewed in days, rather than weeks or months under the traditional due diligence process. • Fund Management – by using the portfolio approach to due diligence, mentioned above, time and legal costs can be saved with the added benefits of assisting with fiduciary duties relating to ownership of the properties and covering title representations and warranties on a sale. This allows a clean exit and cash to be returned to investors as soon as the fund reaches its term.
• Securing Finance – helps investors obtain finance quickly and conveniently, and may facilitate earlier draw down of more advantageous term facilities. In securitisation matters, our title insurance can add strength to the underlying value of the assets and help obtain an appropriate rating from the main agencies.
Providing protection against physical, financial and non-title legal risks As well as the legal risks involved in property transactions, there are also physical, financial and non-title legal risks that can affect a successful completion. First Title can approach a specialist market for a range of property insurance solutions for these risks, which complement our own title insurance.
The Physical Risks Commercial property is subject to a number of known and potential problems connected to previous and intended use and to the construction of buildings on it. First Title can arrange cover for: • Contaminated Land – we can arrange for a pre-purchase site appraisal, remediation and insurance cover, to protect against losses from contamination on or off site. • Unexpected Archaeological Discovery – protection against delay costs, additional archaeological costs, cancellation and redesign costs and loss of profits and value.
The Financial Risks Property-related transactions raise a number of financial questions at different stages, each of which creates potential risks and real costs for investors and lenders. These risks are often insurable and include: • Credit and Third Party Insolvency – protection against failure of a third party to meet its financial obligations or their insolvency. • Specialist Sureties and Bonds – insurance such as Contract Performance Bonds, Roads and Sewer Bonds, Reinstatement Bonds, Advance/Stage Payment Bonds and Deferred Consideration Bonds.
The Non-Title Legal Risks Not all legal risks relating to property are title-related, and a standard title policy cannot cover all legal risks or the related heads of loss. • Commercial Contingency – covers such risks as a change in the law after completion, possible breach of planning permission, costs of litigation and contractual indemnities.
First Title is dedicated to commoditising property ownership in all major European markets. We aim to improve the efficiency of acquisitions, disposals and due diligence of property and mortgage assets and enhance ratings with insurance.
First Title is playing a key role in the European property market Throughout Europe there are different law codes and registration systems and the accuracy of land registration records differ between territories. As Europe becomes more unified, property ownership has become more complicated. Although parts of Europe are “open for business” for the first time in half a century, the legal and cultural differences still remain. Central and Eastern Europe is a prime example. The requirement to use notaries as well as lawyers, the lack of professional indemnity insurance, restitution issues, gaps in the registration of title and mortgages, and potential liabilities involving title representations and warranties can seriously jeopardise property and land transactions. Even in Western Europe, where there is a long-standing history of land registration and legal process, there are other issues that can affect property transactions. For example, in Germany, issues include lease defects that breach the “written form” of the German civil code rendering the lease unenforceable.
In all of these instances and many more, title insurance from First Title provides ownership peace of mind, offers protection, and more importantly, can help property investors and lenders operate more profitably in Europe. By taking a more innovative approach to title insurance, First Title is making all types of property transactions in Europe, faster, safer and less costly for investors, developers, lenders and lawyers.
First Title has the largest capacity in the title insurance market At First Title we are able to access underwriting limits that are far and away the highest in the UK Industry, due to the huge resources of our parent company First American Corporation. First American’s international insurance business is bigger than all of the other US title insurers put together and that includes Stewart and Land America. In the UK alone we typically insure over £1 billion of commercial property each month and regularly issue cover for individual deals in excess of £250 million, with the largest single deal to date amounting to %5.4 billion. First Title plc - part of the First American Corporation, has nine offices throughout Europe - five offices in the UK and others in Germany, Poland, Hungary and Turkey, with more than 600 employees providing local knowledge, resource and expertise.
Through The First American Title Insurance Company, based on the most recent evaluations, we have ratings of A Excellent from AM Best, A+ from Fitch, A3 from Moody’s and A- from Standard and Poor’s.
