Indemnity Insurance of Absentee Landlord Lender conveyancing requirements
Nationwide and Chelsea BS, as with the majority of banks, set their own requirements when it comes to absentee landlord indemnity insurance. This page sets out to enlighten domestic conveyancing practitioners on the different mortgage company conveyancing panel where the title to be charged contains absentee landlord. It is not a substitute for checking the CML handbook requirements for each bank, whether it be Virgin Money, Natwest or Santander. The information on this page is not focused on absentee landlord indemnity insurance requirements.
Need help with absentee landlord indemnity insurance from your lender?
As a solicitor on a lender panel you must report to the lender (see Section two of the UK Finance Lenders’ Handbook) if it comes to your attention that the landlord is either missing or insolvent. If the bank are to lend, they may require absentee landlord indemnity policy. In some conveyancing matters a buyer or mortgage company might accept a missing landlord indemnity policy but many purchasers or lenders will not be willing to move forward. See 5.14.15 to see if the lender accept indemnity insurance if the landlord is absent or insolvent. Examples of such requirements as follows:
| Lender | Requirement |
|---|---|
| Bank of Scotland | Yes, subject to the requirements of section 9 being met |
| Britannia | Yes |
| Hinckley and Rugby | Yes. |
| Landbay Partners | Yes, if the title remains good and marketable and you are satisfied that such indemnity insurance covers all associated risks and you are able to issue an unqualified title certificate. |
| Santander | We may accept indemnity insurance but the matter must be referred to the Mortgage Operations office instructing you for confirmation that indemnity insurance is acceptable and for details of any additional requirements. |
| The Mortgage Lender | No. We are not prepared to lend in these circumstances. |
| RBS - Direct Line One | Yes. |
About Absentee Landlord Indemnity Insurance
Many conveyancing practitioner throughout the country regularly rely on absentee landlord insurance to help move the conveyancing process when the freeholder or landlord of land or residence is insolvent, unresponsive or where the company is no longer in existence. This results in an inability to pay ground rent and seek consent to lease assignments and alterations to the property. The potential risk is that the landlord may request ground rent or try to forfeiture of the lease on the basis of breach of covenant should they subsequently appear.
Godiva Mortgages and Yorkshire Building Society like many lenders, instructions are such that where absentee landlord indemnity insurance is to be put on risk:
- the limit of indemnity must satisfy the requirements for the mortgage company (See Part II Handbook requirements )
- the absentee landlord indemnity insurance policy needs to be for the benefit of the lender and, if possible, for the benefit of the mortgagor and any subsequent registered proprietor or lender. Where the borrower will not be covered by the absentee landlord indemnity insurance policy, you must advise the borrower of this fact.
- the absentee landlord indemnity insurance policy must not contain terms which you are aware would void or compromise the interests of the lender
- you must send a duplicate of the absentee landlord indemnity insurance to the borrower and explain to the mortgagor why the absentee landlord indemnity insurance policy was effected and that a further policy might be mandatory if there is additional lending against the mortgaged property
- you must reveal to the insurer all relevant information which you have obtained
- your firm is duty bound to point out to the mortgagor that the borrower is obliged to adhere to any conditions of the absentee landlord indemnity insurance policy and that the borrower should notify the bank of any notice or potential claim in relation to the policy
- the absentee landlord indemnity insurance policy should be effected at no cost to the lender
- your firm must approve the terms of the absentee landlord policy on behalf of the lender
| Lender | Requirement |
|---|---|
| April Mortgages | An amount at least equal to the mortgage advance. |
| Bank of Ireland Mortgages | The limit of indemnity must be an amount not less than the market value of the property. |
| Bank of Scotland | Not less than mortgage advance plus 10% |
| Bluestone Mortgages | An amount at least equal to the total mortgage advance. Any indemnity insurance policy must protect the borrowers, any successors in title and any mortgagee. |
| Bradford & Bingley | Amount of loan + 15% |
| Britannia | Cover to the full value of the property. |
| Coutts Finance | The open market value of the property according to the valuation report. |
| Dudley Building Society | Purchase price or valuation, whichever is higher. |
| Family Building Society | An amount at least equal to the mortgage advance. |
| HSBC UK Bank | The value of the insurance must be for at least the full value of the property |
| Hinckley and Rugby | The policy must be for our benefit and for no less than the amount lent to the borrower, including retentions, stage payments and interest. |
| ITL Mortgages | Minimum of the value of the property. |
| Landbay Partners | An amount equal to 100% of the property valuation or purchase price (whichever is greater) plus 10%. |
| Manchester Building Society | Purchases- higher of the Purchase price & valuation Re-mortgages- Loan x 115%. |
| Market Harborough Building Society | Purchase price or valuation - higher of the two |
| Precise Mortgages | An amount at least equal to 110% of the mortgage valuation. |
| Santander | The purchase price or (if lower) 110% of the mortgage advance. |
| Scottish Building Society | Amount of mortgage plus 25%. |
| The Mortgage Lender | An amount at least equal to the mortgage advance. |
| RBS - Direct Line One | An amount equal to the value of the property. |
Non lender-specific considerations
The extent of the terms for absentee landlord indemnity insurance are set out in the policy document. Conveyancing solicitors are obliged to point the borrower to the absentee landlord indemnity insurance policy document. The intention of absentee landlord indemnity insurance is to provide indemnity in respect of the risks set out in the policy schedule - so it’s important to check the schedule to determine that it is as it should be. The duration of this non-investment insurance agreement is in perpetuity unless the policy says something to the contrary. Adequacy in this regard should be checked.Absentee Landlord indemnity insurance: Significant aspects and benefits:
Protection via such a policy is to cover the risk of third parties looking to enforce rights that can affect the use of a property. Absentee Landlord indemnity insurance Policies should be checked for the following- Money paid with the written consent of the insurance company to liberate the land from the risks specified in the absentee landlord policy.
- 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.
- Cover for compensation incurred in any action regarding the risks specified in the absentee landlord indemnity insurance, including fees of a legal nature.
- Expenses for works (including architects’ and surveyors’ fees) for the purpose of the development begun, or contracted for, before the commencement of proceedings for the enforcement of the risks specified in the absentee landlord indemnity insurance, to the extent that such costs are rendered abortive by court decision.
- All other costs and expenses incurred by the Insured with the written consent of the relevant insurer
- Market value reduction resulting from the successful enforcement of the risks specified in the absentee landlord indemnity insurance.
Don't forget to consider what is not included in the absentee landlord policy e.g. does the policy cover any property that has been altered within the 12 months prior to the commencement of the policy? Are legal costs covered?
Further considerations for absentee landlord indemnity insurance
Absentee Landlord Indemnity insurance isn’t a solution to all of the relevant problems.The above information is in relation to properties in England and Wales.