Defective Lease Indemnity Insurance Mortgage Company conveyancing requirements
Santander and Coventry BS, like most lenders, have their own requirements when it comes to defective lease indemnity insurance. This page sets out to enlighten conveyancing practitioners on the various mortgage company solicitors panel where the title for the the property to be mortgaged includes defective lease. It is not a alternative for checking the Council of Mortgage Lenders’ handbook requirements for each lender, for example Skipton, Lloyds TSB or Barclays. The information on this page Is not to be read as defective lease indemnity insurance advice.
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Natwest and Yorkshire Building Society in common with most lenders, requirements are that where defective lease indemnity insurance is to be put on risk:
- you must spell out to the mortgagor that the borrower must adhere to any conditions of the defective lease indemnity insurance policy and that the mortgagor should notify the mortgage company of any notice or potential claim in relation to the policy
- you must send a duplicate of the defective lease indemnity insurance to the borrower and explain to the borrower why the defective lease indemnity insurance policy was effected and that a further policy may be required if there is supplemental borrowing against the mortgaged property
- the defective lease indemnity insurance policy needs to be for the benefit of the mortgage company and, if possible, for the benefit of the borrower and any subsequent owner or mortgage company. If the mortgagor will not be covered by the defective lease indemnity insurance policy, the borrower must be informed accordingly.
- the level of indemnity must satisfy the requirements for the mortgage company (See Part II Handbook requirements )
- you must approve the terms of the defective lease policy on behalf of the bank
- your firm is obliged to disclose to the insurer all relevant information which you have obtained
- the defective lease indemnity insurance policy should be placed on risk at no cost to the lender
- the defective lease indemnity insurance policy should not contain terms that you know would invalidate or prejudice the interests of the bank
| Lender | Requirement |
|---|---|
| Accord Buy to Let | 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. |
| 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. |
| Coutts & Co | The open market value of the property according to the valuation report. |
| DB UK Bank | An amount at least equal to the mortgage advance or credit limit, whichever the higher. The policy must be assignable |
| Foundation Home loans | An amount equal to 110% of the valuation or purchase price - whichever is the greater. |
| Halifax | An amount at least equal to the mortgage advance. |
| Harpenden Building Society | 110% of mortgage advance |
| Investec | The open market value of the property according to the valuation report. |
| 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. |
| ModaMortgages | An amount at least equal to 110% of the mortgage valuation. |
| Rely Mortgages | An amount at least equal to 110% of the mortgage valuation. |
| Santander | The purchase price or (if lower) 110% of the mortgage advance. |
| Scottish Building Society | Amount of mortgage plus 25%. |
| State Bank of India UK | The purchase price or value of the property, whichever is the higher. |
| TSB | The value of the property |
| Royal Bank of Scotland | 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. |
| Whistletree | The value of the property |
Defective Lease Contingency Insurance : Reflections
The full terms, conditions and exclusions for defective lease indemnity insurance are set out in the policy document. Conveyancing solicitors should point the borrower to the defective lease indemnity insurance policy itself. Defective Lease Contingency insurance is devised to provide indemnity in respect of the risks set out in the policy schedule - so it’s important to check the document to determine that it is correct. The lifetime 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.Defective Lease indemnity insurance: Important aspects 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 Policies should be checked for the following- All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurance company
- Reimbursement for compensation incurred in any proceedings in respect of the risks specified in the defective lease policy, including incurred costs and expenses.
- All sums paid with consent in writing from the insurance company to free the property from the risks specified in the defective lease policy.
- The cost of works (including architects’ and surveyors’ fees) for the purpose of the development begun, or contracted for, 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 order.
- Diminution in value due to the successful enforcement of the risks specified in the defective lease policy.
- The cost of altering or destroying 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.
Don't forget to consider what is excluded from the defective lease policy e.g. does the policy cover any residence that has been altered within the year prior to the commencement of the policy? Does it cover legal costs?
Defective Lease Indemnity Insurance has limitations - Other considerations
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. Information contained within this webpage is for general information for Regulated law firms in England and Wales on the the lender solicitor 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 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 content set out above is in relation to properties in England and Wales.