Mortgage Company conveyancing panel conditions re Absentee Freeholder Indemnity Insurance

Halifax and Natwest, as with the majority of lenders, set their own requirements when it comes to absentee freeholder indemnity insurance. This page sets out to enlighten conveyancing lawyers on the different mortgage company approved list of panel lawyers where the title for the the property to be mortgaged includes absentee freeholder. Solicitors should still check the CML handbook requirements for each mortgage company, be it Bank of Scotland, Skipton or Birmingham Midshires. The content on this page Is not to be read as absentee freeholder indemnity insurance advice.

Need help with absentee freeholder indemnity insurance from your lender?

In your capacity as a conveyancing lawyer on a bank panel you must report to the lender (see Section two of the UK Finance Lenders’ Handbook) if it becomes apparent that the freeholder is either absent or insolvent. If the bank are to lend, they may ask you to take out absentee freeholder indemnity policy. Lenders’ approach is changing however and an increased number of banks have changed their requirements on the minimum lease term before they are prepared to lend. LENDER monitor has noted a changing attitude towards to absentee freeholder insurance. Numerousmortgage companies in the past stated that, they would have lent on an missing freeholder, whereas they will no longer do so. See 5.14.15 to see if the lender accept indemnity insurance if the freeholder is absent or insolvent. Examples of such requirements as follows:

Lender Requirement
Holmesdale Building Society No.
ITL Mortgages Yes. Provided that you are satisfied that the insurance will make the title good and and marketable.
Intelligent Finance Yes
Lloyds Indemnity insurance is required if we agree to lend.
Manchester Building Society Yes, the limit of indemnity must equal the purchase price or valuation.
Nationwide Building Society Yes, providing there are no more than 6 flats in the building (no need to contact the Issuing Office)-7 flats or more unacceptable
Virgin No. Instead refer to:
Mortgage Processing
Virgin Money plc
Jubilee House
Newcastle upon Tyne

or DX 60350 Gosforth

Solicitors Helpline: 0845 604 4858

If the landlord is absent, we'll lend if you confirm:
- that the position is accepted by practitioners in the local area of the property; and
- the landlord isn't required by the lease to maintain, repair or insure any common areas/services or to enforce such obligations against 3rd parties.

About Absentee freeholder Indemnity Insurance

Thousands of conveyancer throughout the UK regularly rely on absentee freeholder insurance to help move the conveyancing process when the freeholder or freeholder of land or residence is insolvent, absent or where Bona Vacantia applies in relation to defunct companies. This results in an inability to pay ground rent and obtain consent to lease assignments and alterations to the property. The loss arises because the freeholder may request ground rent or attempt forfeiture of the lease on grounds of breach of covenant should they subsequently surface.

Leeds Building Society and Accord as with most lenders, instructions are such that where absentee freeholder indemnity insurance is effected:

  • your firm must supply a duplicate of the absentee freeholder indemnity insurance to the borrower and explain to the borrower why the absentee freeholder indemnity insurance policy was effected and that a further policy could be mandatory if there is additional borrowing against the security of the property
  • you are responsible for approving the terms of the absentee freeholder policy on behalf of the bank
  • the absentee freeholder indemnity insurance policy should be placed on risk without expense to the mortgage company
  • the minimum level of cover for the policy must meet the requirements for the lender (see UK Finance Lenders’ Handbook Part 2 )
  • you is duty bound to explain to the mortgagor that the borrower is obliged to adhere to any conditions of the absentee freeholder indemnity insurance policy and that the mortgagor should notify the lender of any notice or potential claim in respect of the policy
  • the absentee freeholder indemnity insurance policy must be in favor of the mortgage company and, wherever possible, in favour of the mortgagor and any next registered proprietor or bank. If the mortgagor will not be covered by the absentee freeholder indemnity insurance policy, you must advise the borrower of this fact.
  • the absentee freeholder indemnity insurance policy should not incorporate terms which you recognise would invalidate or prejudice the interests of the mortgage company
  • your practice is required to reveal to the insurer all relevant information which you have gathered
As to the level of cover for the absentee freeholder 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 banks:
Lender Requirement
Bank of Scotland Not less than mortgage advance plus 10%
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.
Cynergy Bank The market value of the property.
Dudley Building Society Purchase Price valuation if price is at a discount or remortgage).
Earl Shilton Building Society At least 110% of the amount of the advance
Furness Building Society Property valuation or purchase price, whichever the greater.
Halifax An amount at least equal to the mortgage advance.
Holmesdale Building Society 110%
ITL Mortgages Minimum of the value of the property.
Intelligent Finance An amount at least equal to the total of the initial mortgage advance plus any pre-agreed reserve. These amounts will be shown in the mortgage offer.
Investec Please refer to Part 2, para 21.2 of Standing Instructions.
Lloyds The value of the property.
Manchester Building Society Purchases- higher of the Purchase price & valuation
Re-mortgages- Loan x 115%.
Nationwide Building Society Purchase Price (valuation if price is at a discount).
Contact Issuing Office for advice on a remortgage
New Life Mortgages Agree with Underwriting Department.
Precise Mortgages An amount at least equal to 110% of the mortgage valuation.
Saffron Building Society Higher of purchase price or valuation.

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).
RBS - Virgin One 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.

General Absentee Freeholder indemnity insurance points to consider

The extent of the terms for absentee freeholder indemnity insurance are explained in the policy document. Conveyancing solicitors are obliged to point the borrower to the absentee freeholder indemnity insurance policy itself. The intention of absentee freeholder indemnity insurance is to afford indemnity in respect of the risks set out in the policy schedule - so you should check any draft to determine that it is correct. The duration of this non-investment insurance contract is in perpetuity unless the policy says something to the contrary. Adequacy in this regard should be checked.

Absentee Freeholder Contingency insurance: Important features 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 Freeholder indemnity insurance Policies are likely to cover the following
  • All sums paid with the written consent of the insurance company to liberate the property from the risks specified in the absentee freeholder policy.
  • Cover for compensation incurred in any proceedings regarding the risks specified in the absentee freeholder policy, including incurred costs and expenses.
  • Market value reduction due to the successful enforcement of the risks specified in the absentee freeholder insurance.
  • All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
  • Expenses for works (including architects’ and surveyors’ fees) for the purpose of the development started, before the commencement of proceedings for the enforcement of the risks specified in the absentee freeholder insurance, to the extent that such costs are rendered abortive by court order.
  • The out of pocket expenses 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.

You also need to be sure that the answers on the application form are accurate. Regardless of how remote a claim on the mortgage company insurance policy might be you can rest assured that the insurer will check the details on any proposal form very carefully before any claim is met.

Supplemental considerations for absentee freeholder indemnity insurance

Bear in mind, that if a covenant is breached and changes have to be made, simply getting monetary compensation from absentee freeholder insurance may be adequate for your client.
Content on this webpage is for general information for conveyancers and solicitors in England and Wales on the the bank conveyancing panel, it does not constitute advice for members of the public who should contact their lawyer for advice relating to the lender 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 absentee freeholder Policies is if you make any contact with any party who might cause a claim under the Policy, it can invalidate the cover.

The above information is in relation to properties in England and Wales.

Find out more about Continuing Competence for Solicitors and professional standards.

Find out more about how flying freeholds can affect the marketability of a property.

Find out more about how absent freeholders can affect your ability to remortgage or sell your property.