Indemnity Insurance of Defective Lease Lender conveyancing requirements
Yorkshire Bank Home Loans and Bank of Scotland, as with many banks, set their own requirements when it comes to defective lease indemnity insurance. The content herein aims to help residential conveyancing firms on the different lender approved list of panel lawyers where the title to be charged contains defective lease. Lawyers are advised to familiarise themselves with the CML handbook requirements for each mortgage company, be it Yorkshire Building Society, RBS or Lloyds TSB. The content on this page is not focused on defective lease indemnity insurance requirements.
Need help with defective lease indemnity insurance from your lender?
Barnsley BS and Godiva Mortgages as with many banks, obligations require that where defective lease indemnity insurance is to be taken out:
- you must reveal to the insurer all relevant information which you have obtained
- the defective lease indemnity insurance policy should not incorporate conditions that you are aware would void or compromise the interests of the lender
- you are responsible for approving the terms of the defective lease policy on behalf of the bank
- your firm must send a copy of the defective lease indemnity insurance to the mortgagor and explain to the mortgagor why the defective lease indemnity insurance policy was effected and that a further policy could be required if there is supplemental lending against the security of the property
- the defective lease indemnity insurance policy should be placed on risk at no expense to the bank
- the defective lease indemnity insurance policy must be for the benefit of the bank and, wherever possible, for the benefit of the borrower and any future registered proprietor or mortgagee. If the mortgagor will not be protected by the defective lease indemnity insurance policy, you must advise the borrower of this fact.
- the level of indemnity must meet the requirements for the mortgage company (see UK Finance Lenders’ Handbook Part 2 )
- you must point out to the mortgagor that the borrower will need to adhere to any conditions of the defective lease indemnity insurance policy and that the mortgagor should notify the bank of any notice or potential claim in relation to the policy
| Lender | Requirement |
|---|---|
| Bank of Ireland Mortgages | The limit of indemnity must be an amount not less than the market value of the property. |
| Bank of Scotland Private | [This lender has not published an answer to this question. Please contact the lender.]
|
| Birmingham Midshires | An amount equal to at least 110% of the purchase price or value, whichever is higher. |
| 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. |
| Clydesdale Bank | Open market value of property. |
| HSBC UK Bank | The value of the insurance must be for at least the full value of the property |
| M&S Bank | the value of the insurance must be for at least the full value of the property |
| Manchester Building Society | Purchases- higher of the Purchase price & valuation Re-mortgages- Loan x 115%. |
| ModaMortgages | An amount at least equal to 110% of the mortgage valuation. |
| Paragon Residential | An amount at least equal to the stated value of the Property. |
| 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). |
| Platform | 110% of principal sum. |
| Rely Mortgages | An amount at least equal to 110% of the mortgage valuation. |
| Skipton Building Society | For lender only cover we will accept a minimum of 110% (index-linked) of the amount of the loan. |
| TSB | The value of the property |
| RBS - Direct Line One | An amount equal to the value of the property. |
| RBS (One Account) | An amount equal to the value of the property. |
| Ulster Bank | An amount equal to the value of the property. |
| Vida Homeloans | It must be for a minimum of 110% of the purchase price or valuation, whichever is greater |
| 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. |
Defective Lease Contingency Insurance : Reflections
The extent of the terms for defective lease indemnity insurance are identified in the policy paperwork. Conveyancing solicitors should point the borrower to the defective lease indemnity insurance policy document. Defective Lease Contingency insurance is devised to grant indemnity in respect of the risks specified in the policy schedule - so it’s important to check any draft to determine that it is in order. The lifetime of this non-investment insurance agreement is in perpetuity unless otherwise stated in the defective lease indemnity insurance policy. Again, please check that this is as you expected.Defective Lease indemnity insurance: Important characteristics and benefits:
The insurance will normally cover where someone claims to be entitled to the benefit of the specified risks, stated in the defective lease indemnity insurance schedule. Defective Lease indemnity insurance Cover normally includes- 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.
- The cost of works (including professional fees) for the purpose of the development commenced, prior to proceedings for the enforcement of the risks specified in the defective lease policy, to the extent that such costs are rendered abortive by court decision.
- All other costs and expenses incurred by the Insured with the written consent of the relevant insurance company
- Money paid with the written consent of the insurance company to liberate the land from the risks specified in the defective lease indemnity insurance.
- Cover for compensation incurred in any proceedings regarding the risks specified in the defective lease indemnity insurance, including solicitors charges.
- Loss in market value resulting from the successful enforcement of the risks specified in the defective lease indemnity insurance.
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 defective lease policy will not be valid.
Further considerations for defective lease indemnity insurance
Defective Lease 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 defective lease indemnity cover will not necessarily be the right solution. 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 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.
An important exclusion applying to most defective lease 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 covers to properties in England and Wales.