Lender conveyancing panel conditions re Restrictive Covenant Indemnity Insurance

Halifax and Godiva Mortgages, as with many mortgage companies, have their own specific instructions when it comes to restrictive covenant indemnity insurance. This page sets out to enlighten property law solicitors on the numerous mortgage company conveyancing panel where the title to be charged includes restrictive covenant. Lawyers are advised to familiarise themselves with the CML handbook requirements for each mortgage company, be it Yorkshire Bank Home Loans, Virgin Money or Nationwide. The information on this page Is not to be read as restrictive covenant indemnity insurance advice.

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In your capacity as a solicitor on a mortgage company panel you must investigate whether the property has been built, altered or is currently used in contravention of a restrictive covenant. Lenders such as Halifax, Godiva Mortgages or Yorkshire Bank Home Loans rely on you to check that the covenant is not enforceable. Should you be unable to provide an unqualified COT 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 Contingency insurance is taken out on completion of the mortgage (see UK Finance Lenders’ Handbook section 9).

Should your investigations reveal proof that the restrictive covenant has been breached and, after having conducted reasonable due diligence, you are assured that there is a good and marketable title ; you are able to issue an unconditional COT to the mortgage company and the breach has remained in existence for over twenty years unchallenged, then restrictive covenant indemnity insurance will not be mandated by the mortgage company.

Natwest and Leeds Building Society as with the majority of mortgage companies, obligations require that where restrictive covenant indemnity insurance is effected:

  • the restrictive covenant indemnity insurance policy must be effected without expense to the bank
  • you are responsible for approving the terms of the restrictive covenant policy on behalf of the mortgage company
  • your firm is duty bound to point out to the borrower that the borrower is obliged to comply with any conditions of the restrictive covenant indemnity insurance policy and that the mortgagor should notify the lender of any notice or potential claim in relation to the policy
  • 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 may be necessary if there is additional borrowing against the security of the property
  • your practice must disclose to the insurer all relevant information which you have obtained
  • the restrictive covenant indemnity insurance policy must be for the benefit of the mortgage company and, wherever possible, for the benefit of the mortgagor and any subsequent registered proprietor or bank. Where the borrower will not be covered by the restrictive covenant indemnity insurance policy, you must advise the mortgagor of this fact.
  • the restrictive covenant indemnity insurance policy should not incorporate conditions which you know would invalidate or prejudice the interests of the bank
  • the limit of indemnity must meet the requirements for the lender (See Part II Handbook requirements )
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 mortgage companies:
Lender Requirement
Ahli United Bank An amount equal to the value of the Mortgaged Property
Allied Irish Bank At least the amount of the mortgage advance.
Barclays plc Higher of purchase price or valuation
Barnsley 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.
Birmingham Midshires An amount equal to at least 110% of the purchase price or value, whichever is higher.
Coventry Building Society Minimum of the value of the property.
Danske Bank The limit of indemnity insurance should be the purchase price or valuation - whichever is higher
HSBC UK Bank The value of the insurance must be for at least the full value of the property
Halifax An amount at least equal to the mortgage advance.
Hampden The open market value of the property according to the valuation report.
Keystone Property Finance An amount equal to 110% of the valuation or purchase price - whichever is the greater
Landmark 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.
Leeds Building Society An amount at least equal to the amount of the mortgage advance plus 10%. Any indemnity insurance policy must protect the borrowers, any successor in title and any Mortgagee.
MPowered Mortgages Either the minimum reinstatement value or where there is no valuation the market value/purchase price figure (whichever is higher).
Reliance Bank \xA31,000,000.00
Rooftop Mortgages The value of the property for mortgage purposes as disclosed in the valuation.
Royal Bank of Scotland An amount equal to the value of the property.
RBS - Direct Line An amount equal to the value of the property.
RBS (One Account) An amount equal to the value of the property.
Whistletree The value of the property

Non lender-specific considerations

The full terms, conditions and exclusions for restrictive covenant indemnity insurance are explained in the policy document. Conveyancing Practitioners should direct your non-lender client to the restrictive covenant indemnity insurance policy paperwork. The intention of restrictive covenant indemnity insurance is to provide indemnity in respect of the risks specified in the policy schedule - so it’s important to check the document to ensure it is correct. The continuance 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 Contingency insurance :

This policy would usually provide protection from financial loss that might arise in the event of a third party making a cliam in respect of the risks identified in the policy document. Restrictive Covenant indemnity insurance Policies are likely to cover the following
  • Money paid with the written consent of the insurance company to liberate the property from the risks specified in the restrictive covenant policy.
  • Expenses for works (including architects’ and surveyors’ 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 indemnity insurance, to the extent that such costs are rendered abortive by court order.
  • Diminution in value due to the successful enforcement of the risks specified in the restrictive covenant insurance.
  • All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
  • Reimbursement for compensation incurred in any proceedings concerning the risks specified in the restrictive covenant insurance, including fees of a legal nature.
  • 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.

Always consider what is not included in the restrictive covenant policy e.g. does the policy cover any property that has been altered within the year prior to the policy being put on risk? Does it cover legal costs?

Additional 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.

For instance if your client has to significantly change their dream home, they may feel that they would have been better of not buying in the first place.

Information provided on 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 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. An important exclusion applying to most restrictive covenant Policies is if you make any contact with any party who might cause a claim under the Policy, it can invalidate the cover.

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