Indemnity Insurance of Absentee Freeholder Lender conveyancing requirements
Skipton and Halifax, like many lenders, dictate their own specific instructions when it comes to absentee freeholder indemnity insurance. The content herein aims to help property law solicitors on the various bank approved list of panel lawyers where the title for the the property to be mortgaged contains absentee freeholder. It is not a alternative for checking the CML handbook requirements for each lender, be it Chelsea BS, Lloyds TSB or Barnsley BS. The information on this page Is not to be read as absentee freeholder indemnity insurance advice.
Need help with absentee freeholder indemnity insurance from your lender?
Being a conveyancing practitioner on a mortgage company panel you must notify to the bank (see PII of the UK Finance Lenders’ Handbook) if it comes to your attention that the freeholder is either absent or insolvent. If the lender are to lend, they may require missing freeholder indemnity policy. Banks’ approach is changing however and an increased number of banks have tightened their requirements on the minimum lease term before they are prepared to lend. LENDER monitor has identified since 2008 a changing attitude towards in absentee freeholder insurance. A number of lendersmortgage companies previously stated that, they would have lent on an absentee freeholder, whereas they will no longer do so. See 5.14.15 to see if the lender accept indemnity insurance if the freeholder is absent or insolvent. Examples of such requirements as follows:
| Lender | Requirement |
|---|---|
| Adam & Company | No, but may be accepted with our prior written approval. Please refer individual cases See 1.11 |
| Birmingham Midshires | Yes, subject to the requirements of section 9 being met. |
| Gen H | If the property is leasehold and there is an absentee or insolvent Landlord and no more than 6 flats in the building, you do not need to report this to us if you are submitting a clear certificate of title and an appropriate indemnity policy is obtained on completion to protect our security. If there are 7 flats or more in the building this is not acceptable to us. If you need to report any issues, please do so through Secure Link which is accessed via the LMS Conveyancer Zone. |
| Lloyds TSB Scotland | Indemnity insurance is required if we agree to lend. |
| RBS - Direct Line | Yes. |
| RBS- First Active | Yes. |
| Yorkshire Building Society | Yes, provided you are satisfied that such insurance is a solution to the difficulty identified and you can give an unqualified Certificate of Title. You must retain a copy of any insurance policy on your file. |
About Absentee freeholder Indemnity Insurance
Thousands of lawyer throughout the UK regularly rely on absentee freeholder insurance to help move the conveyancing process when the freeholder or freeholder of land or property is insolvent, missing or where the company is no longer in existence. This impacts the ability to pay ground rent and seek consent to lease assignments and alterations to the premises. The potential risk is that the freeholder may request ground rent or seek forfeiture of the lease on the basis of breach of covenant should they subsequently surface.
Accord and RBS like the majority of banks, obligations require that where absentee freeholder indemnity insurance is to be put on risk:
- the absentee freeholder indemnity insurance policy should always be for the benefit of the bank and, wherever possible, in favour of the borrower and any subsequent registered proprietor or mortgage company. Where the borrower will not be covered by the absentee freeholder indemnity insurance policy, the mortgagor needs to be informed accordingly.
- you are responsible for approving the terms of the absentee freeholder policy on behalf of the bank
- you is duty bound to point out to the mortgagor that the borrower is obliged to comply with any conditions of the absentee freeholder indemnity insurance policy and that the mortgagor should notify the lender of any notice or potential claim in relation to the insurance
- you must supply a duplicate of the absentee freeholder indemnity insurance to the borrower and explain to the mortgagor why the absentee freeholder indemnity insurance policy was effected and that additional insurance could be mandatory if there is additional borrowing against the mortgaged property
- the level of indemnity must meet the requirements for the bank (see UK Finance Lenders’ Handbook Part 2 )
- your firm is obliged to reveal to the insurer all relevant information which you have acquired
- the absentee freeholder indemnity insurance policy must be placed on risk at no expense to the lender
- the absentee freeholder indemnity insurance policy must not incorporate conditions which you know would void or compromise the interests of the mortgage company
| Lender | Requirement |
|---|---|
| Accord Buy to Let | An amount at least equal to the amount of the mortgage advance. Any indemnity insurance policy must protect the borrowers, any successors in title and any mortgagee. |
| Adam & Company | The open market value of the property according to the valuation report. |
| Bank of Scotland Private | [This lender has not published an answer to this question. Please contact the lender.]
|
| Birmingham Midshires | An amount equal to at least 110% of the purchase price or value, whichever is higher. |
| Family Building Society | An amount at least equal to the mortgage advance. |
| Gen H | An amount equal to the value of the property unless specifically agreed in writing otherwise. |
| Lloyds TSB Scotland | The value of the property |
| Market Harborough Building Society | Purchase price or valuation - higher of the two |
| Metro Bank | The open market value of the property according to the valuation report. |
| ModaMortgages | An amount at least equal to 110% of the mortgage valuation. |
| Molo Finance Buy to Let | An amount at least equal to the amount of the mortgage advance. Any indemnity insurance policy must protect the borrowers, any successors in title and any mortgages. |
| Monmouthshire Building Society | The higher of the purchase price or valuation. For remortgages, the value of the advance. |
| Pepper Money | An amount equal to at least 110% of the purchase price or value, whichever is higher. Any indemnity insurance policy must be for our benefit, that of any transferee/assignee (legal or equitable) of the mortgage and also the borrower(s). |
| Platform | 110% of principal sum. |
| Precise Mortgages | An amount at least equal to 110% of the mortgage valuation. |
| Principality Building Society | Full market value of the property is preferred but if this is not available we will accept the loan advance amount as minimum. You must approve the policy on our behalf. The estimated property value is stated in the Mortgage Offer in remortgage cases. Otherwise it will be stipulated in the Valuation. |
| Scottish Building Society | Amount of mortgage plus 25%. |
| RBS - Direct Line | An amount equal to the value of the property. |
| RBS- First Active | An amount equal to the value of the property. |
| Yorkshire Building Society | An amount at least equal to the amount of the mortgage advance. Any indemnity insurance policy must protect the borrowers, any successors in title and any mortgagee. |
Absentee Freeholder Contingency Insurance : Reflections
The extent of the terms for absentee freeholder indemnity insurance are explained in the policy document. Property lawyers are obliged to direct your non-lender client to the absentee freeholder indemnity insurance policy paperwork. The intention of absentee freeholder indemnity insurance is to grant indemnity in respect of the risks specified in the policy schedule - so it is essential check the document to ensure it is in order. The continuance of this non-investment insurance agreement is in perpetuity unless the policy says something to the contrary. Adequacy in this regard should be checked.Important aspects and benefits of absentee freeholder Contingency insurance :
The insurance will normally cover where someone claims to be entitled to the benefit of the specified risks, stated in the absentee freeholder indemnity insurance schedule. Absentee Freeholder indemnity insurance Policies are likely to cover the following- Diminution in value resulting from the successful enforcement of the risks specified in the absentee freeholder insurance.
- Reimbursement for compensation incurred in any proceedings regarding the risks specified in the absentee freeholder policy, including fees of a legal nature.
- Expenses for works (including architects’ and surveyors’ fees) for the purpose of the development started, before the commencement of proceedings for the enforcement of the risks specified in the absentee freeholder indemnity insurance, to the extent that such costs are rendered abortive by court order.
- The out of pocket expenses of altering or demolishing all, or part of the development and the reinstatement of the land, insofar as such alteration, demolition or re-instatement is made necessary by court order.
- All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurer
- All sums paid with consent in writing from the insurance company to liberate the land from the risks specified in the absentee freeholder policy.
You also need to be sure that the answers on the application form are correct. However remote the likelihood of a claim on the bank insurance policy might be you can certain that the insurer will check the details on any proposal form thoroughly before any claim is admitted.
Absentee Freeholder Indemnity Insurance has limitations - Supplemental considerations
Bear in mind, that if a covenant is breached and changes have to be made, simply getting monetary compensation from absentee freeholder insurance may be adequate for your client. Information contained within this webpage is for general information for Regulated law firms in England and Wales on the the bank solicitor panel, it does not constitute advice for members of the public who should contact their lawyer for advice relating to the mortgage company indemnity insurance. Whilst we endeavour to keep the information up to date and correct we do not make any representation or warranties of any kind about its completeness, accuracy, reliability or suitability. Any reliance you place on the information is strictly at your own risk. Lexsure will not be liable for any direct or indirect loss or damage arising out of or in connection with the use of this information.
An important exclusion applying to most absentee freeholder Policies is if you make any contact with any party who might cause a claim under the Policy, it can invalidate the cover.
The above information is in relation to properties in England and Wales.