Restrictive Covenant Indemnity Insurance Bank conveyancing requirements

Barnsley BS and Yorkshire Bank Home Loans, in common with many banks, set their own requirements when it comes to restrictive covenant indemnity insurance. This page sets out to enlighten conveyancing lawyers on the different bank conveyancing panel where the title to be charged contains restrictive covenant. Lawyers are advised to familiarise themselves with the Council of Mortgage Lenders’ handbook requirements for each bank, whether it be Natwest, Lloyds TSB or RBS. The content on this page is not focused on restrictive covenant indemnity insurance requirements.

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In your capacity as a conveyancing practitioner on a bank panel you must conduct due diligence as to whether the property has been built, altered or is currently used in breach of a restrictive covenant. Lenders such as Barnsley BS, Yorkshire Bank Home Loans or Natwest rely on you to check that the covenant is not enforceable. Should you be unable to issue an unqualified COT to the lender 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 on risk on completion of the mortgage (see UK Finance Lenders’ Handbook section 9).

Should your investigations reveal evidence of a breach and, following reasonable due diligence, you are satisfied that the title is good and marketable ; you are able to issue an unqualified COT to the lender and the breach has remained in existence for over 20 years unchallenged, then restrictive covenant indemnity insurance will not be mandated by the mortgage company.

Leeds Building Society and Halifax like many mortgage companies, obligations require that where restrictive covenant indemnity insurance is to be put on risk:

  • the level of indemnity must satisfy the requirements for the mortgage company (see UK Finance Lenders’ Handbook Part 2 )
  • the restrictive covenant indemnity insurance policy needs to be for the benefit of the bank and, if possible, for the benefit of the borrower and any subsequent registered proprietor or bank. Where the borrower will not be protected by the restrictive covenant indemnity insurance policy, the mortgagor must be informed accordingly.
  • the restrictive covenant indemnity insurance policy should not contain terms which you recognise would void or compromise the interests of the mortgage company
  • your firm must send a copy of the restrictive covenant indemnity insurance to the borrower and explain to the mortgagor why the restrictive covenant indemnity insurance policy was effected and that additional insurance could be required if there is supplemental lending against the mortgaged property
  • the restrictive covenant indemnity insurance policy should be effected without charge to the mortgage company
  • your practice is duty bound to explain to the mortgagor that the borrower will need 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 relation to the insurance
  • your firm is required to reveal to the insurer all relevant information which you have acquired
  • your firm must approve the terms of the restrictive covenant policy on behalf of the bank
Regarding the extent of cover for the restrictive covenant indemnity insurance policy (or for that matter any indemnity insurance), consider the following sampling of Section 9.2 of the CML handbook PII requirements for lenders:
Lender Requirement
Accord Mortgages 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.
Aldermore Bank 110% of the purchase price or valuation, whichever is greater.

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).
Allied Irish Bank At least the amount of the mortgage advance.
Bank of Ireland The limit of indemnity must be an amount not less than the market value of the property.
Bradford & Bingley Amount of loan + 15%
Fleet Mortgages An amount at least equal to the valuation of the property.
Foundation Home loans An amount equal to 110% of the valuation or purchase price - whichever is the greater.
Keystone Property Finance An amount equal to 110% of the valuation or purchase price - whichever is the greater
LendInvest An amount at least equal to the valuation of the property.
Nationwide Building Society Purchase Price (valuation if price is at a discount).
Contact Issuing Office for advice on a remortgage
Nedbank You are to refer to us for specific instructions on any matter involving indemnity insurance.
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).
Rooftop Mortgages The value of the property for mortgage purposes as disclosed in the valuation.
Scottish Widows The value of the property.
Secure Trust Bank An amount at least equal to the market value.

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).
The Mortgage Business An amount at least equal to the mortgage advance/credit limit - whichever is the highest.
Royal Bank of Scotland -Natwest One An amount equal to the value of the property.
Vida Homeloans Only acceptable after referral and 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) and be for 110% of the purchase price or valuation,
Yorkshire Bank Open market value of property.
Zephyr Mortgages Valuation or purchase price, whichever is higher. The policy must always benefit the borrower and any subsequent owner or mortgagee - the policy must be index linked.

Restrictive Covenant Contingency Insurance : Reflections

The extent of the terms for restrictive covenant indemnity insurance are set out in the policy document. Property lawyers should direct your non-lender client to the restrictive covenant indemnity insurance policy paperwork. Restrictive Covenant Contingency insurance is devised to provide 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 lifetime of this non-investment insurance agreement is in perpetuity unless the policy says something to the contrary. It is well worth checking that the time frame is correct.

Restrictive Covenant Contingency insurance: Significant features and benefits:

The insurance will normally cover where someone claims to be entitled to the benefit of the specified risks, stated in the restrictive covenant indemnity insurance schedule. Restrictive Covenant indemnity insurance Cover normally includes
  • All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurer
  • The cost of altering or taking down 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.
  • Liability for damages or compensation incurred in any proceedings regarding the risks specified in the restrictive covenant policy, as well as legal and associated costs.
  • Expenses for works (including professional fees) for the purpose of the development started, 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 decision.
  • All sums paid with the written consent of the insurance company to free the property from the risks specified in the restrictive covenant policy.
  • Diminution in value resulting from the successful enforcement of the risks specified in the restrictive covenant policy.

Due diligence should extend to checking that the answers on the application form are accurate. However remote the likelihood of a claim on the lender insurance policy might be you can rest assured that the insurer will check the details on any proposal form thoroughly before any claim is paid out.

Other considerations for restrictive covenant indemnity insurance

Restrictive Covenant Indemnity policies can provide effective protection, but non-lender clients should be asked to give pause for thought and consider that the consequences of not being able to enjoy the property as anticipated may mean that restrictive covenant indemnity cover will not necessarily be the answer.

A good example is a granny annex may have to be taken down but indemnity insurance will not compensate for the loss of separate but adjoining accommodation for an elderly relative in need of care. Whilst this is not necessarily of relevance to the bank it my be of importance to your borrower client.

Content on this webpage is for general information for Regulated law firms in England and Wales on the the lender 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. 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 above information is in relation to properties in England and Wales.

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