Lender conveyancing panel requirements re Restrictive Covenant Indemnity Insurance

Yorkshire Bank Home Loans and Barclays, as with many banks, dictate their own requirements when it comes to restrictive covenant indemnity insurance. This page sets out to enlighten domestic conveyancing lawyers on the different lender approved list of panel lawyers where the title for the the property to be mortgaged contains restrictive covenant. Lawyers are advised to familiarise themselves with the CML handbook requirements for each mortgage company, whether it be RBS, Skipton or Yorkshire Building Society. The content on this page Is not to be read as restrictive covenant indemnity insurance advice.

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Being a property lawyer on a mortgage company panel you must investigate whether the property has been built, altered or is currently used in breach of a restrictive covenant. Banks such as Yorkshire Bank Home Loans, Barclays or RBS rely on you to check that the covenant is not enforceable. Should you be unable to issue an unqualified certificate of title to the bank as a result of the risk of enforceability you must ensure (subject to the UK Finance Lenders’ Handbook paragraph 5.11.2) that indemnity insurance is taken out on the completion date of the mortgage (see section 9 of the Council of Mortgage Lenders’ Handbook).

In the event that you conclude that there is evidence that the restrictive covenant has been breached and, following reasonable enquiries, you are satisfied that there is a good and marketable title ; you are in a position to submit an unconditional COT to the mortgage company and the breach has continued for over twenty years without challenge, then restrictive covenant indemnity insurance will not be mandated by the lender.

Barnsley BS and Coventry BS like most banks, instructions are such that where restrictive covenant indemnity insurance is to be put on risk:

the restrictive covenant indemnity insurance policy must be placed on risk at no cost to the bank
you must provide a copy of the restrictive covenant indemnity insurance to the mortgagor and explain to the mortgagor why the restrictive covenant indemnity insurance policy was effected and that a further policy might be mandatory if there is additional lending against the mortgaged property
your firm is obliged to reveal to the insurer all relevant information which you have gathered
the restrictive covenant indemnity insurance policy must not contain terms which you know would void or prejudice the interests of the bank
the level of indemnity must satisfy the requirements for the mortgage company (See Part II Handbook requirements )
your firm must point out to the mortgagor that the borrower is obliged to adhere to any conditions of the restrictive covenant indemnity insurance policy and that the mortgagor should notify the mortgage company of any notice or potential claim in respect of the insurance
the restrictive covenant indemnity insurance policy should always be for the benefit of the mortgage company and, wherever possible, for the benefit of the borrower and any next owner or bank. Where the borrower will not be protected by the restrictive covenant indemnity insurance policy, you must advise the borrower of this fact.
your practice are responsible for approving the terms of the restrictive covenant policy on behalf of the mortgage company

Regarding the extent of cover for the restrictive covenant indemnity insurance policy (or for that matter any indemnity insurance), consider the following sampling of Paragraph 9.2 of the Part 2 requirements for lenders:

Lender	Requirement
Better HomeOwnership	An amount to cover the mortgage advance as a minimum.
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.
Godiva Mortgages	Minimum of the value of the property.
HSBC UK Bank	The value of the insurance must be for at least the full value of the property
Hodge	An amount equal to 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, the borrower(s) and any successor in Title.
Keystone Property Finance	An amount equal to 110% of the valuation or purchase price - whichever is the greater
Landbay Partners	An amount equal to 100% of the property valuation or purchase price (whichever is greater) plus 10%.
MPowered Mortgages	Either the minimum reinstatement value or where there is no valuation the market value/purchase price figure (whichever is higher).
ModaMortgages	An amount at least equal to 110% of the mortgage valuation.
Mortgage Express	Amount of loan + 15%
NRAM Ltd	Preference for full market value of the property, but if this level of cover is not available, will accept a minimum of the actual loan amount. You must approve the policy on our behalf.
National Westminster Bank	An amount equal to the value of the property.
New Street Mortgages	Must be for a minimum of 110% of the purchase price or valuation whichever is the greatest.
Paratus	An amount equal to 110% of the valuation or purchase price - whichever is the greater.
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).
Perenna	The higher of the purchase price or valuation.
Reliance Bank	\xA31,000,000.00
Sainsbury's Bank	An amount equal to the higher of the value of the property or the purchase price.
RBS- First Active	An amount equal to the value of the property.
Together Personal Finance	Minimum of £2,000,000.00 per claim.

Non lender-specific considerations

The extent of the terms for restrictive covenant indemnity insurance are explained in the policy paperwork. Conveyancing solicitors should point your non-lender client to the restrictive covenant indemnity insurance policy document. Restrictive Covenant Contingency insurance is designed to grant indemnity in respect of the risks set out in the policy schedule - so you should check any draft to determine that it is as it should be. The duration of this non-investment insurance agreement is in perpetuity unless otherwise stated in the restrictive covenant indemnity insurance policy. It is well worth checking that the time frame is correct.

Significant features and benefits of restrictive covenant indemnity insurance :

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. Restrictive Covenant indemnity insurance Policies should be checked for the following

The cost of altering or destroying 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 the written consent of the relevant insurer
Expenses for works (including professional fees) for the purpose of the development begun, or contracted for, prior to proceedings for the enforcement of the risks specified in the restrictive covenant insurance, to the extent that such costs are rendered abortive by court order.
Money paid with the written consent of the insurance company to liberate the land from the risks specified in the restrictive covenant policy.
Liability for damages or compensation incurred in any proceedings regarding the risks specified in the restrictive covenant policy, including solicitors charges.
Diminution in value due to the successful enforcement of the risks specified in the restrictive covenant indemnity insurance.

As with any insurance policy, all material information needs to be disclosed to the insurance company at the outset and throughout the policy term, otherwise the restrictive covenant policy will be invalidated.

Restrictive Covenant Indemnity Insurance has limitations - Additional considerations

There may be consequences arising from the enforcement of the risks identified in the restrictive covenant policy which are not adequately covered by financial compensation.

For example, extensions creating a granny annex may have to be taken down but indemnity insurance will not recompense for the loss of separate but adjoining accommodation for an elderly relative who needs occasional care. the mortgage company may not care about such consequences but your other client so consideration needs to be given to explain these potential implications.

Information contained within this webpage is for general information for Regulated law firms in England and Wales on the the bank approved panel, it does not constitute advice for members of the public who should contact their lawyer for advice relating to the bank 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. Do not attempt to contact the person who you think may have the benefit of the restrictive covenant as insurers will almost always invariably refuse to insure if there has been any attempt in this respect. Once you have approached the other party insurance may well become impossible and this would in all likelihood close down indemnity insurance as an option of addressing the restrictive covenant problem.

The content set out above is in relation to properties in England and Wales.