Is Your Client’s Property ‘Out of Bounds’? Title Insurance ‘Survey Cover' Explained

Is Your Client’s Property ‘Out of Bounds’? Title Insurance ‘Survey Cover' Explained

One area of conveyancing practice which represents a significant risk to purchasers in Australia is boundary defects/encroachments. Losses arising from encroachments and resulting boundary discrepancies fall outside of the state ‘guarantee” of title provided by the Torrens System. This means that whilst your client’s title may enjoy the benefits of ‘indefeasibility’ this protection does not extend to cover discrepancies between the physical and legal boundaries of the property.

There is often a perception by purchasers that the physical boundaries, such as fences and walls, represent the legal boundaries of the property. However, as legal practitioners and licensed conveyancers know, this is not necessarily the case.

It is generally considered prudent conveyancing practice for legal practitioners and licensed conveyancers to advise clients to obtain an ‘identification’ or ‘check’ survey of the property prior to purchase. This aspect of ‘due diligence’ is important as a survey report will identify any discrepancy between the legal and physical boundaries. However, in many jurisdictions in Australia, the overwhelming majority of clients do not obtain a survey report and very few of Australia’s financial institutions require a survey to be obtained as a condition of a loan approval.

Accordingly, many purchasers proceed to settlement without knowing whether the property has existing boundary defects. Boundary defects are problematic because, in circumstances where the boundaries are incorrect, a purchaser may not be legally entitled to all of the improvements which the purchaser paid for as part of the sale. Structures such as garages, sheds, carports and even the main dwelling may, in fact, be located on the neighbour’s land (partly or in full). The neighbour may discover this and demand the structures be removed. Alternatively, the purchaser may discover that fences and other improvements encroach upon their land and demand those structures be removed by the neighbour.

Where a boundary/encroachment issue is discovered after settlement, the purchaser may be faced with the prospect of demolishing structures which formed part of the purchase price or otherwise may be faced with the prospect of complicated and costly legal disputes with the neighbours.

What does title insurance cover?

Stewart Title’s Residential Purchaser & Existing Owner Policy provides cover for “Actual Loss” and “Authorised Expenses” as a result of encroachments, boundary discrepancies or other boundary-related title defects which would have been disclosed in a survey report at the time of purchase*.

In the event that an encroachment or other boundary discrepancy is discovered after settlement, such loss and expenses may include:

  • The costs of compensating the adjoining property owner in consideration of the adjoining owner granting an ‘easement for support’ allowing the encroaching structure to remain;
  • Legal costs incurred in defending any proceedings brought by the adjoining owner against the insured;
  • If the encroaching structure has to be demolished then Stewart Title may pay the costs of the demolition and pay compensation for any loss in the market value of the property for the deprivation of the use of the encroaching structure (such as a deck or carport or living space) or may pay the costs of rebuilding the structure within the legal boundaries.
  • In circumstances where the insured has entered into a contract to sell the property and prior to completion the purchaser discovers a boundary discrepancy or encroachment, the loss may include costs associated with rectifying the encroachment or any reduction in the sale price (marketability coverage).
  • If there was a dispute in relation to the encroachment or the covenant or proceedings are issued against the insured in relation to the encroachment, then Stewart Title may defend the insured’s title and would pay the costs incurred in that defence.

*The above cover is not available for properties where the land area exceeds 50 acres.

The benefits of Title Insurance

This type of cover is only available through a title insurance policy. A title insurance adds value to your client in circumstances where your client does not obtain a boundary survey at the time of purchase.

The benefit for the conveyancing practitioner is that in the event of a loss incurred by the buyer as a result of unknown survey or boundary defects, the buyer can make a claim on the title insurance policy on a “no-fault” basis.

For more information about Title Insurance

Should you require any further information, we encourage you to visit the Stewart Title website: www.stewartau.com

Stewart Title also has comprehensive Consumer Guides available which provide commentary and other important information about the coverage and exclusions contained in Stewart Title's Residential Purchaser Policy, including commentary and information about making a claim.

To view, download or print a copy of the Consumer Guides, please click on the following:

By Tony Waldron - Stewart Title Limited

Please note that this information is provided solely for general information purposes only and does not relate to your personal circumstances. It is not intended to be a complete description of all the terms, conditions, exclusions applicable to the title insurance product and does not constitute legal advice.   You should contact the title insurer directly for specific advice in relation to the title insurance product and for a copy of a sample policy.

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