Covenants for Title UK — Full Title Guarantee, Limited Title Guarantee, and LPA 1994

Full Title Guarantee — The LPA 1994 Implied Covenants

When a transferor (seller) uses the expression 'full title guarantee' in a transfer deed, they are giving all of the covenants implied by LPA 1994 ss.2–5. The implied covenants under full title guarantee are: (1) Right to dispose (s.2(1)(a)): the seller has the right to dispose of the property in the way purported — i.e. the seller has the legal capacity and entitlement to transfer the title. This protects the buyer against a seller who had no right to sell (e.g. a fraudster purporting to sell someone else's property); (2) Quiet enjoyment / freedom from incumbrances (s.2(1)(b)): the buyer will have quiet enjoyment of the property and the seller will do all further acts at the buyer's cost to give effect to the transfer. This is a covenant that the buyer will not be disturbed in their possession by anyone claiming through the seller; (3) Freedom from incumbrances (s.3): the seller covenants that the property is free from all incumbrances other than: (a) incumbrances that the buyer knows about; (b) incumbrances registered in any public register that the buyer is expected to search (i.e. incumbrances the buyer discovers on the official searches — Land Registry title, local land charges, water and drainage, etc.); (c) incumbrances that would have been revealed by an inspection of the property; and (d) incumbrances that the seller does not know about and could not reasonably know about. The s.3 covenant is very important for landlords buying investment property — it covers defects in the title that are not revealed by the searches or inspection; (4) Further assurance (s.4): the seller will do further acts to complete the transfer if required at the buyer's cost; (5) Leasehold covenants (s.4): where the property is leasehold, the seller covenants that the lease is valid and subsisting and that the seller has not done anything to put the lease in jeopardy.

• Right to dispose (s.2(1)(a)): the seller has legal capacity and entitlement to transfer the title; protects against fraudulent sales by persons with no right to sell
• Quiet enjoyment (s.2(1)(b)): the buyer will have undisturbed possession and the seller will take all further steps to give effect to the transfer
• Freedom from incumbrances (s.3): the property is free from incumbrances other than those the buyer knows about, those revealed by the usual searches, those apparent on inspection, and those the seller could not know about — a significant limitation on the scope of the covenant
• Further assurance (s.4): the seller will take further steps to complete the transfer if required; an ongoing obligation
• Leasehold additional covenants (s.4): where the property is leasehold, the lease is valid and subsisting and the seller has done nothing to put it in jeopardy

Limited Title Guarantee — When Is It Used and What Does It Mean

A limited title guarantee gives fewer implied covenants than a full title guarantee. The principal difference is in the s.3 covenant about freedom from incumbrances: under a limited title guarantee, the seller's covenant is only that the seller has not themselves incumbered the title — the seller is NOT covenanting that there are no incumbrances created by predecessors in title or by third parties. The seller is only responsible for their own acts and omissions, not for incumbrances created by anyone else. When is limited title guarantee used? Limited title guarantee is typically used where: (i) the seller is a personal representative (executor or administrator) disposing of property in the estate — the executor may not know everything about the history of the property, and it would be unreasonable to ask them to covenant for the acts of the deceased; (ii) the seller is a receiver or liquidator acting on behalf of an insolvent company — the receiver/liquidator is selling under a power of sale and has limited knowledge of the property's history; (iii) the seller is a mortgagee selling under a power of sale — the mortgagee/lender is selling the security property and will not give full title guarantee; (iv) the property is being transferred on a gift or at an undervalue where the transferor wants to limit their liability; (v) any other situation where the seller has limited knowledge of the title history or limited liability exposure. A buyer receiving only limited title guarantee should ensure that the searches and enquiries are thorough, that title indemnity insurance is considered for any known risks, and that the price reflects the additional risk of limited title guarantee. Scotland: Scotland has its own system of warrandice (the Scottish equivalent of covenants for title) — absolute warrandice (equivalent to full title guarantee); fact and deed warrandice (equivalent to limited title guarantee); and simple warrandice (a bare warranty that the seller will not actively do anything to undermine the title).

• Limited title guarantee — seller's own incumbrances only: the s.3 covenant is limited to incumbrances created by the seller — not those created by predecessors in title; the buyer bears the risk of unknown historical incumbrances
• Common scenarios: personal representative sales; mortgagee sales under a power of sale; receiver/liquidator sales; gifts and undervalue transfers; any sale where the seller has limited title knowledge
• Buyer risk: with limited title guarantee, the buyer cannot claim against the seller for incumbrances created by predecessors in title or third parties — title indemnity insurance is more important
• Scotland — warrandice: Scotland uses warrandice (not covenants for title); absolute warrandice = full title guarantee equivalent; fact and deed warrandice = limited title guarantee equivalent; simple warrandice = minimal warranty against active interference by seller
• Price reflection: the additional risk of limited title guarantee should be reflected in the purchase price; buyers should negotiate accordingly and commission thorough searches and enquiries

What Covenants for Title Do NOT Cover

Understanding the limitations of covenants for title is just as important as understanding what they do cover. The implied covenants under LPA 1994 do NOT cover: (i) Physical defects in the property: covenants for title are about the legal quality of the title — not the physical condition of the building. A buyer who discovers structural problems, damp, subsidence, or disrepair after completion has no claim under the covenants for title (unless the physical defect is itself a registered encumbrance or restriction); (ii) Matters revealed by the searches: the s.3 freedom from incumbrances covenant specifically excludes incumbrances revealed by the standard searches that a buyer is expected to carry out. If a local land charge (e.g. a planning notice; a financial charge; a smoke control order) appears on the official search, the buyer is deemed to know about it and the seller's covenant does not apply; (iii) Matters apparent on inspection: the s.3 covenant excludes incumbrances that would have been revealed by a careful inspection of the property. If a right of way over the garden is visible from looking at the property, the buyer cannot claim under the covenant for title if they fail to notice it; (iv) Incumbrances the seller did not know about and could not reasonably have known about: the s.3 covenant has a knowledge carve-out — unknown incumbrances beyond the seller's reasonable knowledge are excluded; (v) Planning matters: existing planning use, conditions, and enforcement notices are generally revealed by the local authority search and are not covered by the covenants for title; (vi) Environmental matters: ground contamination, flood risk, and other environmental matters are not within the scope of the covenants for title. For these risks, environmental searches, specialist surveys, and/or title indemnity insurance are the appropriate protection. Title indemnity insurance: title indemnity insurance (a one-off premium, typically negotiated between buyer and seller as to who pays) covers specific identified risks in the title that are not fully addressed by the covenants for title — for example, a potential but unregistered third party interest; a missing planning permission for historical works; a chancel repair liability; or a potential breach of a restrictive covenant. For landlords buying investment property, title indemnity insurance is often more practical and effective than relying on the covenants for title.

• No physical condition warranty: covenants for title cover the legal quality of the title — not the physical state of the building; buyers must rely on surveys (RICS Level 2 or Level 3) for physical condition
• Search results excluded: incumbrances revealed by the standard searches (Local Land Charges; Land Registry official copy; water/drainage; coal authority; environmental) are excluded from the s.3 freedom from incumbrances covenant
• Inspection excluded: incumbrances apparent on a careful inspection of the property are excluded; buyers should visit and inspect before exchange
• Unknown seller incumbrances excluded: the seller's knowledge carve-out means incumbrances they did not know about and could not reasonably have known are excluded from the warranty
• Title indemnity insurance: a practical alternative to relying on covenants for title for specific identified risks; one-off premium; covers the buyer (and their lender) against loss arising from a specific title defect

Breach of Covenants for Title — Remedies and Limitation

If a covenant for title is breached, the buyer has a claim in damages against the seller under the law of contract. The measure of damages is the loss suffered as a result of the breach — typically the diminution in value of the property arising from the undisclosed incumbrance, or the cost of rectifying the breach. Key points about breach of covenant for title claims: (i) Limitation period: the Limitation Act 1980 applies; for a covenant that is given under a deed (which most transfers of land are), the limitation period is 12 years from the date of the deed. This gives buyers a long window to bring a claim; (ii) The breach must be actual, not theoretical: the buyer must have actually suffered loss as a result of the incumbrance — a theoretical risk is not enough. If the undisclosed incumbrance has never been enforced and is highly unlikely to be enforced, damages may be nominal; (iii) Seller must have knowledge: for the s.3 covenant under a full title guarantee, the seller's knowledge carve-out is important — if the seller genuinely did not know and could not reasonably have known about an incumbrance, there is no breach; (iv) Solvency risk: a claim for breach of covenant for title is a personal claim against the seller. If the seller is insolvent, has died, or is otherwise unable to pay, the buyer may have no practical remedy. This is why title indemnity insurance is often a more reliable form of protection than relying on a covenant for title claim; (v) Scotland — warrandice claims: in Scotland, a claim under warrandice follows similar principles; the buyer must have been evicted from the property (eviction in the broad sense, including the assertion of a competing right over the property) before they can bring a warrandice claim in most cases.

• 12-year limitation period: claims for breach of covenant for title (under a deed) must be brought within 12 years of the date of the transfer — a generous limitation window for buyers
• Actual loss required: the buyer must have suffered actual loss from the incumbrance; a theoretical or unenforced risk does not give rise to a damages claim
• Seller knowledge carve-out: for the s.3 covenant under full title guarantee, the seller's genuine ignorance of an incumbrance (where it could not reasonably have been known) is a defence
• Solvency risk: a covenant for title is a personal claim against the seller; if the seller is insolvent, deceased, or untraceable, the remedy may be worthless in practice — title indemnity insurance is more robust protection
• Scotland — warrandice: a warrandice claim in Scotland typically requires the buyer to have suffered eviction (in the broad sense of a competing title being asserted) before the claim arises; similar limitation principles apply

Frequently asked questions