Indemnity Insurance of Defective Lease Lender conveyancing instructions
Yorkshire Building Society and Barnsley BS, like the majority of banks, have their own requirements when it comes to defective lease indemnity insurance. The purpose of this page to assist conveyancing lawyers on the numerous lender solicitors panel where the title for the the property to be mortgaged includes defective lease. Lawyers are advised to familiarise themselves with the Council of Mortgage Lenders’ handbook requirements for each bank, be it Chelsea BS, Bank of Scotland or Virgin Money. The information on this page is not focused on defective lease indemnity insurance requirements.
Need help with defective lease indemnity insurance from your lender?
Lloyds TSB and Natwest in common with many mortgage companies, requirements are that where defective lease indemnity insurance is to be put on risk:
- you must send a copy of the defective lease indemnity insurance to the mortgagor and explain to the borrower why the defective lease indemnity insurance policy was effected and that additional insurance may be necessary if there is additional lending against the security of the property
- the defective lease indemnity insurance policy should be placed on risk without charge to the bank
- your firm are responsible for approving the terms of the defective lease policy on behalf of the bank
- the defective lease indemnity insurance policy needs to be for the benefit of the bank and, if possible, for the benefit of the mortgagor and any future registered proprietor or bank. If the mortgagor will not be covered by the defective lease indemnity insurance policy, you must advise the mortgagor of this fact.
- your practice must disclose to the insurer all relevant information which you have acquired
- the defective lease indemnity insurance policy should not incorporate terms which you know would invalidate or compromise the interests of the lender
- the level of indemnity must meet the requirements for the bank (See Part II Handbook requirements )
- your practice must spell out to the mortgagor that the borrower is obliged to adhere to any conditions of the defective lease indemnity insurance policy and that the mortgagor should notify the lender of any notice or potential claim in respect of the policy
| Lender | Requirement |
|---|---|
| Adam & Company | The open market value of the property according to the valuation report. |
| Allied Irish Bank | At least the amount of the mortgage advance. |
| Bank of China | Cover to full value of the property or the Mortgage Advance, whichever is the higher. |
| Bank of Scotland | Not less than mortgage advance plus 10% |
| Bank of Scotland Private | [This lender has not published an answer to this question. Please contact the lender.]
|
| 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. |
| Bluestone Mortgages | 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. |
| DB UK Bank | An amount at least equal to the mortgage advance or credit limit, whichever the higher. The policy must be assignable |
| Halifax Loans | An amount at least equal to the mortgage advance. |
| Handelsbanken | Purchase price or 110% of mortgage advance, whichever is the greater. |
| 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. |
| Hodge Equity Release | 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. |
| 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. |
| JPMorgan | 110% of principal sum. |
| Market Harborough Building Society | Purchase price or valuation - higher of the two |
| Mortgage Express | Amount of loan + 15% |
| Paragon Mortgages Ltd | An amount at least equal to the stated value of the Property. |
| 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. |
| Ulster Bank | An amount equal to the value of the property. |
| 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. |
Non lender-specific considerations
The full terms, conditions and exclusions for defective lease indemnity insurance are set out in the policy document. Conveyancing Practitioners should point your non-lender client to the defective lease indemnity insurance policy paperwork. Defective Lease Contingency insurance is designed to provide indemnity in respect of the risks set out in the policy schedule - so you should check the schedule to ensure 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. It is well worth checking that the time frame is correct.Significant features and benefits of defective lease Contingency insurance :
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. Defective Lease indemnity insurance Policies are likely to cover the following- The out of pocket expenses 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.
- All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
- The cost of works (including architects’ and surveyors’ fees) for the purpose of the development commenced, 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 decision.
- Money paid with consent in writing from the insurance company to free the land from the risks specified in the defective lease policy.
- Reimbursement for compensation incurred in any proceedings in respect of the risks specified in the defective lease insurance, as well as legal and associated costs.
- Market value reduction resulting from the successful enforcement of the risks specified in the defective lease indemnity insurance.
Always consider what is not included in the defective lease indemnity 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?
Additional considerations for defective lease indemnity insurance
Defective Lease insurance may satisfy lenders such as RBS or Nationwide and prevent clients from from suffering financially but it cannot compensate for the stress and inconvenience the emotional suffering - after all the value of a home cannot always be measured in cash in the eyes of the owner. 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 above information covers to properties in England and Wales.