For properties located in England and Wales, it is sometimes asked whether a buyer should request an indemnity against unknown matters affecting the land. For example, it may be that a property is registered with the possessory title because the original or a copy of the root of title, such as a conveyance, could not be provided to HM Land Registry for the purposes of first registration. In such instances, how can a buyer be sure that there is no continuing liability or otherwise which may be contained or referred to in that missing root of title or other document, and how can it protect itself?
Generally, a successor in the title will not be liable for breaches of covenant caused by a predecessor, and it is the buyer who must provide an indemnity to the seller because the seller could be liable for breaches caused by the buyer. However, the seller might have direct liability under, for example an indemnity covenant it gave on its purchase.
An indemnity against unknown matters can always be requested from the seller, but for a seller to agree to any such indemnity, it would need to be drafted very carefully. While the buyer might not want the risk of being liable for an inherited breach, the seller will always want protection should the buyer do anything new that is a breach of a covenant in its own right.
From a practical perspective, often an indemnity of this nature cannot be agreed because its drafting is too complex and could create too much uncertainty and grey areas for both buyer and seller. A buyer should always proceed with caution and may instead be able to negotiate a price reduction to reflect any such problems. Alternatively, the parties might consider putting in place some form of indemnity insurance to cover the possible risk of enforcement of unknown obligations. This is not a solution, and the problem (if there is one) will remain, but nevertheless at least the buyer will have some protection if the worst happens. Often though, it is a matter of perspective – i.e. if the missing document dates from the nineteenth century, then the chances of enforcement are surely so small that it may well be that a view should be taken by the buyer, as no doubt the seller will have taken a view when it purchased. Or, it might be that the missing document for unregistered land giving rise to the possessory title was simply a mortgage secured by possession of the title, in which case the chances are that there will be no practical consequences.
It is the nature of title investigation that such matters often come to the surface. And it is something that needs to be discussed with your legal advisors so you can run through the consequences and practicalities and come to an informed decision on whether the issue is serious and requires action, or not.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.