Indemnity Insurance of Lack of Building Regulation Approval Bank conveyancing instructions

Leeds Building Society and Nationwide, in common with most mortgage companies, set their own specific instructions when it comes to lack of building regulation approval indemnity insurance. The content herein aims to help property law firms on the various mortgage company conveyancing panel where the title to be charged includes lack of building regulation approval. It is not a substitute for checking the CML handbook requirements for each bank, whether it be Virgin Money, Chelsea BS or Santander. The content on this page is not focused on lack of building regulation approval indemnity insurance requirements.

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As a property lawyer on a lender panel you must conduct due diligence as to (including any supplemental enquiries to clarify any issues which may arise) to ensure the premises or any works thereto has the correct Building Regulation Approval and that the property may be the subject of enforcement action.

Where there is evidence of such a breach or matter but in your professional opinion there is no reasonable prospect of enforcement action and, following reasonable enquiries, and you are satisfied that that the title is uncompromised and can provide an unqualified COT, the lender will not require lack of building regulation consent indemnity insurance and you may go ahead without it.

Where there is such evidence that not all building regulation approvals will be in place on completion, where you are not able to provide an unconditional COT, you should report this to the bank in accordance with 2.3. of Part two of the Council of Mortgage Lenders Handbook. Each mortgage company such as Leeds Building Society or Nationwide will adopt a different stance.

About Lack of Building Regulation Approval Indemnity Insurance

Lack of Building Regulation Approval Indemnity Insurance is typically required where no documentary evidence of building regulation consent can be provided for works (or FENSA certificate for windows) that have existed for a year or more, whether a residential premises or large commercial project. The loss arises following successful enforcement proceedings by the local authority. In a typical conveyancing scenario the vendor would be expected to pay the premium for the Lack of Building Regulation Approval Indemnity Insurance, which would be taken out in the purchaser’s name as well as the bank.

A lack of building regulation approval indemnity insurance policy is normally less expensive than obtaining retrospective certificate and is certainly much quicker. The flipside is that the risk of enforcement action does not disappear.

Godiva Mortgages and Natwest in common with most mortgage companies, obligations require that where lack of building regulation approval indemnity insurance is to be put on risk:

the lack of building regulation approval indemnity insurance policy should be placed on risk without cost to the bank
the lack of building regulation approval indemnity insurance policy should not incorporate terms which you recognise would void or compromise the interests of the bank
your firm must provide a copy of the lack of building regulation approval indemnity insurance to the borrower and explain to the borrower why the lack of building regulation approval indemnity insurance policy was effected and that a further policy might be necessary if there is further lending against the mortgaged property
your firm are responsible for approving the terms of the lack of building regulation approval policy on behalf of the bank
the lack of building regulation approval indemnity insurance policy should always be in favor of the lender and, if possible, for the benefit of the borrower and any subsequent owner or mortgagee. Where the borrower will not be protected by the lack of building regulation approval indemnity insurance policy, you must advise the borrower of this fact.
you is duty bound to explain to the mortgagor that the borrower must adhere to any conditions of the lack of building regulation approval indemnity insurance policy and that the borrower should notify the lender of any notice or potential claim in respect of the policy
your practice is obliged to reveal to the insurer all relevant information which you have acquired
the limit of indemnity must satisfy the requirements for the lender (See Part II Handbook requirements )

As to the level of cover for the lack of building regulation approval indemnity insurance policy (or for that matter any indemnity insurance), consider the following sampling of Section 9.2 of the Part 2 requirements for lenders:

Lender	Requirement
Adam & Company	The open market value of the property according to the valuation report.
Bank of China	Cover to full value of the property or the Mortgage Advance, whichever is the higher.
Britannia	Cover to the full value of the property.
Coutts & Co	The open market value of the property according to the valuation report.
Fleet Mortgages	An amount at least equal to the valuation of the property.
Metro Bank	The open market value of the property according to the valuation report.
ModaMortgages	An amount at least equal to 110% of the mortgage valuation.
Monmouthshire Building Society	The higher of the purchase price or valuation. For remortgages, the value of the advance.
Mortgage Express (No 2)	[This lender has not published an answer to this question. Please contact the lender.]
National Counties Building Society	An amount at least equal to the mortgage advance.
Nationwide Building Society	Purchase Price (valuation if price is at a discount). Contact Issuing Office for advice on a remortgage
Platform	110% of principal sum.
Scottish Building Society	Amount of mortgage plus 25%.
St James Place	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.
The Mortgage Business	An amount at least equal to the mortgage advance/credit limit - whichever is the highest.
Royal Bank of Scotland -Natwest One	An amount equal to the value of the property.
RBS (One Account)	An amount equal to the value of the property.
Tipton Coseley Building Society	Minimum of mortgage advance.
Ulster Bank	An amount equal to the value of the property.

Lack of Building Regulation Approval Contingency Insurance : Reflections

The full terms, conditions and exclusions for lack of building regulation approval indemnity insurance are shown in the policy document. Property lawyers are obliged to point your non-lender client to the lack of building regulation approval indemnity insurance policy itself. The intention of lack of building regulation approval indemnity insurance is to afford indemnity in respect of the risks set out in the policy schedule - so it’s important to check the schedule to determine that it is in order. The continuance of this non-investment insurance agreement is in perpetuity unless otherwise stated in the lack of building regulation approval indemnity insurance policy. Adequacy in this regard should be checked.

Lack of Building Regulation Approval indemnity insurance: Significant aspects and benefits:

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. Lack of Building Regulation Approval indemnity insurance Policies should be checked for the following

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.
Cover for compensation incurred in any proceedings in respect of the risks specified in the lack of building regulation approval policy, as well as legal and associated costs.
Market value reduction due to the successful enforcement of the risks specified in the lack of building regulation approval policy.
The cost of works (including architects’ and surveyors’ fees) for the purpose of the development started, prior to proceedings for the enforcement of the risks specified in the lack of building regulation approval policy, to the extent that such costs are rendered abortive by court order.
All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurance company
All sums paid with the written consent of the insurance company to free the property from the risks specified in the lack of building regulation approval policy.

You also need to be sure that the answers on the application form are accurate. Regardless of how remote a claim on the mortgage company insurance policy might be you can be sure that the insurer will check the details on any proposal form thoroughly before any claim is met.

Lack of Building Regulation Approval 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 lack of building regulation approval insurance may be adequate for your client.

Content on this webpage is for general information for Regulated law firms in England and Wales on the the lender approved 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 lack of building regulation approval 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 covers to properties in England and Wales.