Restrictive Covenant Indemnity Insurance Mortgage Company conveyancing requirements
Yorkshire Bank Home Loans and Coventry BS, in common with many mortgage companies, set their own specific instructions when it comes to restrictive covenant indemnity insurance. The purpose of this page to assist conveyancing firms on the different lender approved list of panel lawyers where the title for the the property to be mortgaged contains restrictive covenant. Solicitors should still check the CML handbook requirements for each bank, be it Accord, Lloyds TSB or Skipton. The information on this page Is not to be read as restrictive covenant indemnity insurance advice.
Need help with restrictive covenant indemnity insurance from your lender?
Being a conveyancing lawyer on a lender panel you must conduct due diligence as to whether the property has been built, altered or is currently used in contravention of a restrictive covenant. Mortgage Companies such as Yorkshire Bank Home Loans, Coventry BS or Accord rely on you to investigate whether the covenant is not enforceable. If you are unable to issue an unqualified certificate of title 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 Contingency insurance is taken out on completion of the mortgage (see UK Finance Lenders’ Handbook section 9).
In the event that you conclude that there is proof of a breach and, only after reasonable enquiries, you are assured that there is a good and marketable title ; you can provide an unconditional certificate of title to the lender and the breach has remained in existence in excess twenty years unchallenged, then restrictive covenant indemnity insurance will not be mandated by the mortgage company.
Bank of Scotland and Natwest like most banks, requirements are that where restrictive covenant indemnity insurance is to be put on risk:
- your practice is obliged to disclose to the insurer all relevant information which you have gathered
- your firm is duty bound to point out to the mortgagor that the borrower must comply with any conditions of the restrictive covenant indemnity insurance policy and that the borrower should notify the lender of any notice or potential claim in relation to the insurance
- you must provide 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 a further policy could be necessary if there is additional borrowing against the mortgaged property
- the restrictive covenant indemnity insurance policy needs to be for the benefit of the mortgage company and, if possible, for the benefit of the mortgagor and any next registered proprietor or mortgagee. If the borrower will not be covered by the restrictive covenant indemnity insurance policy, the mortgagor needs to be advised accordingly.
- the level of indemnity must satisfy the requirements for the bank (See Part II Handbook requirements )
- your firm are responsible for approving the terms of the restrictive covenant policy on behalf of the mortgage company
- the restrictive covenant indemnity insurance policy must not incorporate conditions that you know would void or prejudice the interests of the bank
- the restrictive covenant indemnity insurance policy must be placed on risk without expense to the bank
|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.|
|Bank of Scotland|| Not less than mortgage advance plus 10%|
|HSBC UK Bank||The value of the insurance must be for at least the full value of the property|
|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|
|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.|
|Mortgage Express||Amount of loan + 15%|
|Nedbank||You are to refer to us for specific instructions on any matter involving indemnity insurance.|
|Paratus||An amount equal to 110% of the valuation or purchase price - whichever is the greater.|
|Pepper Money (UK)||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).|
|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.|
|Reliance Bank|| |
[This lender has not published an answer to this question. Please contact the lender.]
|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).
|Ulster Bank||An amount equal to the value of the property.|
|Virgin||We require the full market value of the Property. Where this isn't available, we'll accept the loan amount as a minimum.|
|Yorkshire Bank||Open market value of property.|
Restrictive Covenant Contingency Insurance : ReflectionsThe full terms, conditions and exclusions for restrictive covenant indemnity insurance are set out in the policy document. Conveyancing solicitors should point the borrower to the restrictive covenant indemnity insurance policy paperwork. The intention of restrictive covenant indemnity insurance is to grant indemnity in respect of the risks set out in the policy schedule - so you should check the schedule to determine that it is in order. The duration of this non-investment insurance contract is in perpetuity unless the policy says something to the contrary. Again, please check that this is as you expected.
Significant aspects and benefits of restrictive covenant Contingency 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
- Diminution in value resulting from the successful enforcement of the risks specified in the restrictive covenant policy.
- Money paid with consent in writing from the insurance company to free the land from the risks specified in the restrictive covenant insurance.
- The cost 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 the written consent of the relevant insurer
- Reimbursement for compensation incurred in any proceedings in respect of the risks specified in the restrictive covenant insurance, as well as incurred costs and expenses.
- Expenses for works (including professional fees) for the purpose of the development commenced, 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.
As is the case with all conventional insurance, 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 - Other considerationsBear in mind, that if a covenant is breached and changes have to be made, simply getting monetary compensation from restrictive covenant insurance may be adequate for your client.
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.
The content set out above is in relation to properties in England and Wales.
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