Indemnity Insurance of Absentee Freeholder Mortgage Company conveyancing requirements
Bank of Scotland and Leeds Building Society, like most lenders, dictate their own specific instructions when it comes to absentee freeholder indemnity insurance. The content herein aims to help domestic conveyancing firms on the various bank approved list of panel lawyers where the title for the the property to be mortgaged contains absentee freeholder. Solicitors should still check the Council of Mortgage Lenders’ handbook requirements for each bank, be it Chelsea BS, Yorkshire Building Society or Nationwide. The content on this page is not focused on absentee freeholder indemnity insurance requirements.
Need help with absentee freeholder indemnity insurance from your lender?
In your capacity as a solicitor on a bank panel you must disclose to the lender (see PII of the UK Finance Lenders’ Handbook) if it comes to your attention that the freeholder is either absent or insolvent. If the bank are to lend, they may ask you to take out missing freeholder indemnity insurance. Banks’ approach is changing however and an increased number of lenders have tightened their requirements on the minimum lease term before they are prepared to lend. LENDER monitor has identified since 2008 a changing attitude towards to absentee freeholder insurance. Variousbanks previously 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 |
|---|---|
| Chelsea Building Society | Yes provided you are satisfied that such insurance is a solution to the difficulty identified and you can give an unqualified Certificate of Title. You must retain a copy of any insurance policy on your file. |
| Hinckley and Rugby | Yes. |
| Intelligent Finance | Yes |
| Landmark | If there is an absentee landlord we are prepared to proceed upon your confirmation that the position is accepted by practitioners in the locality and provided the landlord is not obligated by the terms of the lease to maintain, repair and insure any common services or to enforce such obligations against a third party. In the case of insolvent landlords refer to our New Mortgage Completions. |
| Sainsbury's Bank | We will not lend where there is an absent or insolvent landlord. |
| The Mortgage Lender | No. We are not prepared to lend in these circumstances. |
| Tipton Coseley Building Society | No, we do not lend in these circumstances. |
About Absentee freeholder Indemnity Insurance
Thousands of lawyer throughout the UK regularly rely on missing freeholder insurance to help move the conveyancing process when the freeholder or freeholder of land or premises is insolvent, unresponsive or where Bona Vacantia applies in relation to removed companies. This impacts the ability to pay ground rent and seek consent to lease assignments and alterations to the premises. The potential risk is that the freeholder may request ground rent or take action for forfeiture of the lease claiming breach of covenant should they subsequently emerge.
HSBC and Coventry BS as with many banks, requirements are that where absentee freeholder indemnity insurance is effected:
- your practice must send a copy of the absentee freeholder indemnity insurance to the borrower and explain to the mortgagor why the absentee freeholder indemnity insurance policy was effected and that a further policy may be necessary if there is further borrowing against the security of the property
- the absentee freeholder indemnity insurance policy must be placed on risk at no charge to the lender
- the level of indemnity must meet the requirements for the bank (see UK Finance Lenders’ Handbook Part 2 )
- your firm must approve the terms of the absentee freeholder policy on behalf of the bank
- your firm is required to disclose to the insurer all relevant information which you have gathered
- the absentee freeholder indemnity insurance policy needs to be in favor of the bank and, wherever possible, in favour of the borrower and any subsequent owner or lender. If the borrower will not be protected by the absentee freeholder indemnity insurance policy, you must advise the borrower of this fact.
- you must explain to the mortgagor that the borrower must 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 insurance
- the absentee freeholder indemnity insurance policy should not contain conditions that you know would invalidate or compromise the interests of the bank
| 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. |
| Bank of Scotland Private | [This lender has not published an answer to this question. Please contact the lender.]
|
| Bradford & Bingley | Amount of loan + 15% |
| Britannia | Cover to the full value of the property. |
| Chelsea 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. |
| First Direct | The value of the insurance must be for at least the full value of the property |
| HSBC UK Bank | The value of the insurance must be for at least the full value of the property |
| Harpenden Building Society | 110% of mortgage advance |
| Hinckley and Rugby | The policy must be for our benefit and for no less than the amount lent to the borrower, including retentions, stage payments and interest. |
| Holmesdale Building Society | 110% |
| 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. |
| 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. |
| Rooftop Mortgages | The value of the property for mortgage purposes as disclosed in the valuation. |
| Sainsbury's Bank | An amount equal to the higher of the value of the property or the purchase price. |
| The Mortgage Lender | An amount at least equal to the mortgage advance. |
| RBS (One Account) | An amount equal to the value of the property. |
| Tipton Coseley Building Society | Minimum of mortgage advance. |
Absentee Freeholder Contingency Insurance : Reflections
The full terms, conditions and exclusions for absentee freeholder indemnity insurance are explained in the policy document. Conveyancing solicitors should point your non-lender client to the absentee freeholder indemnity insurance policy itself. The intention of absentee freeholder indemnity insurance is to provide indemnity in respect of the risks set out in the policy schedule - so it is essential check any draft to determine that it is as it should be. The duration of this non-investment insurance agreement is in perpetuity unless the policy says something to the contrary. Again, please check that this is as you expected.Absentee Freeholder indemnity insurance: Important features and benefits:
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. Absentee Freeholder indemnity insurance Policies should be checked for the following- The cost of works (including professional 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 decision.
- All other costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
- Loss in market value due to the successful enforcement of the risks specified in the absentee freeholder indemnity insurance.
- All sums paid with consent in writing from the insurance company to free the property from the risks specified in the absentee freeholder 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.
- Reimbursement for compensation incurred in any action in respect of the risks specified in the absentee freeholder indemnity insurance, including incurred costs and expenses.
Always consider what is not included in the absentee freeholder insurance e.g. does the policy cover any property that has been altered within the 12 months prior to the commencement of the policy? Does it cover legal costs?
Absentee Freeholder Indemnity Insurance has limitations - Supplemental considerations
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.The above information is in relation to properties in England and Wales.