Defective Lease Indemnity Insurance Mortgage Company conveyancing requirements
HSBC and Bank of Scotland, in common with most banks, dictate their own requirements when it comes to defective lease indemnity insurance. The content herein aims to help property law solicitors on the different lender approved list of panel lawyers where the title for the the property to be mortgaged incorporates defective lease. Solicitors should still check the Council of Mortgage Lenders’ handbook requirements for each mortgage company, whether it be Godiva Mortgages, Natwest or Yorkshire Bank Home Loans. The content on this page Is not to be read as defective lease indemnity insurance advice.
Need help with defective lease indemnity insurance from your lender?
Yorkshire Building Society and Lloyds TSB as with most lenders, instructions are such that where defective lease indemnity insurance is to be put on risk:
- your practice is required to disclose to the insurer all relevant information which you have gathered
- you 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 additional insurance could be required if there is additional borrowing against the mortgaged property
- the defective lease indemnity insurance policy must not contain terms which you know would void or compromise the interests of the bank
- your practice must explain to the borrower that the borrower must comply with any conditions of the defective lease indemnity insurance policy and that the borrower should notify the bank of any notice or potential claim in relation to the insurance
- the defective lease indemnity insurance policy must be placed on risk at no cost to the lender
- your practice are responsible for approving the terms of the defective lease policy on behalf of the bank
- the defective lease indemnity insurance policy should always be for the benefit of the mortgage company and, if possible, in favour of the borrower and any future owner or lender. Where the mortgagor will not be covered by the defective lease indemnity insurance policy, the mortgagor should be informed accordingly.
- the level of indemnity must satisfy the requirements for the bank (see UK Finance Lenders’ Handbook Part 2 )
| Lender | Requirement |
|---|---|
| Adam & Company | The open market value of the property according to the valuation report. |
| Aldermore Bank | 110% of the purchase price or valuation, whichever is greater. 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). Where a property is being sold at undervalue and an equity gift is being provided, the conveyancer must ensure the seller obtains an Insolvency Act Indemnity Insurance Policy and provides evidence to you, so that you are comfortable an appropriate policy is in place to Aldermore’s satisfaction. This indemnity insurance aims to cover Aldermore against any future claims by creditors of the seller that may challenge the sale. |
| Bradford & Bingley | Amount of loan + 15% |
| Co operative Bank | An amount equal to at least 110% of the mortgage advance. |
| Danske Bank | The limit of indemnity insurance should be the purchase price or valuation - whichever is higher |
| Family Building Society | An amount at least equal to the mortgage advance. |
| Halifax | An amount at least equal to the 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. |
| Hodge | An amount equal to 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, the borrower(s) and any successor in Title. |
| Legal & General Home Finance | The policy should be for the full market value of the property and indexed linked. The policy must be for our benefit, and for the benefit of the borrower where available. The policy must benefit all successors and assigns. |
| LendInvest | An amount at least equal to the valuation of the property. |
| LiveMore | An amount equal to the purchase price or value of the property, whichever is higher |
| Lloyds TSB Scotland | The value of the property |
| Manchester Building Society | Purchases- higher of the Purchase price & valuation Re-mortgages- Loan x 115%. |
| Market Harborough Building Society | Purchase price or valuation - higher of the two |
| Masthaven Bank | An amount at least equal to the total mortgage advance. Any indemnity insurance policy must protect the borrowers, any successors in title and any mortgagee. |
| 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 | \xA31,000,000.00 |
| RBS (One Account) | An amount equal to the value of the property. |
| Yorkshire Bank | Open market value of property. |
General Defective Lease indemnity insurance points to consider
The full terms, conditions and exclusions for defective lease indemnity insurance are identified in the policy paperwork. Conveyancing solicitors are obliged to direct your non-lender client to the defective lease indemnity insurance policy paperwork. The intention of defective lease indemnity insurance is to provide indemnity in respect of the risks set out in the policy schedule - so it is essential check the document to determine that it is in order. The lifetime of this non-investment insurance agreement is in perpetuity unless the policy says something to the contrary. It is well worth checking that the time frame is correct.Defective Lease indemnity insurance: Significant aspects 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. Defective Lease indemnity insurance Policies should be checked for the following- Money paid with the written consent of the insurance company to liberate the property from the risks specified in the defective lease 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.
- Cover for compensation incurred in any action concerning the risks specified in the defective lease policy, as well as legal and associated costs.
- Market value reduction due to the successful enforcement of the risks specified in the defective lease insurance.
- All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurer
- The cost of works (including professional fees) for the purpose of the development started, prior to proceedings for the enforcement of the risks specified in the defective lease insurance, to the extent that such costs are rendered abortive by court order.
Due diligence should extend to checking that the answers on the application form are accurate. However remote the likelihood of a claim on the bank insurance policy might be you can rest assured that the insurer will check the details on any proposal form thoroughly prior to any claim being admitted.
Further considerations for defective lease indemnity insurance
There may be consequences arising from the enforcement of the risks identified in the defective lease insurance which are not adequately covered by financial compensation. Information contained within this webpage is for general information for Regulated law firms in England and Wales on the the lender 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 is in relation to properties in England and Wales.