Lender conveyancing panel requirements re Lack of Building Regulation Approval Indemnity Insurance

Yorkshire Bank Home Loans and HSBC, as with the majority of mortgage companies, dictate their own specific instructions when it comes to lack of building regulation approval indemnity insurance. The content herein aims to help conveyancing lawyers on the numerous bank conveyancing panel where the title to be charged incorporates lack of building regulation approval. Lawyers are advised to familiarise themselves with the CML handbook requirements for each mortgage company, for example Lloyds TSB, Bank of Scotland or Leeds Building Society. The content on this page Is not to be read as lack of building regulation approval indemnity insurance advice.

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In your capacity as a solicitor on a mortgage company panel you must enquire (including any additional queries to clarify any issues which may arise) to ensure the residence or any works thereto has the correct Building Regulation Consent and that the property may be the subject of enforcement proceedings.

Where there is evidence of a lack of building regulation approval but in your professional judgment there is no reasonable likelihood of enforcement action and, following reasonable enquiries, and you are assured that the title is good and marketable and are in a position to submit an unqualified COT, the mortgage company may not require lack of building regulation consent indemnity insurance and you may go ahead without it.

If 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 Yorkshire Bank Home Loans or HSBC will take a different approach.

About Lack of Building Regulation Approval Indemnity Insurance

Lack of Building Regulation Approval Cover is typically needed where no verification of building regulation consent can be supplied for alterations (or FENSA certificate for doors) that have existed for for over twelve months, whether a residential property or large commercial project. The consequential losses flow from the successful enforcement proceedings by the local authority. In a typical conveyancing scenario the seller would be expected to pay the premium for the Lack of Building Regulation Approval Indemnity Insurance, which would be taken out in the buyer’s name as well as the lender.

A lack of building regulation approval indemnity insurance policy is in most cases more cost effective than obtaining retrospective consent and is without question significantly quicker. The downside is that the risk of enforcement action still remains.

Barclays and Chelsea BS like most mortgage companies, obligations require that where lack of building regulation approval indemnity insurance is to be taken out:

your practice 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 needs to be for the benefit of the mortgage company and, wherever possible, for the benefit of the mortgagor and any future owner or mortgage company. Where the mortgagor will not be protected by the lack of building regulation approval indemnity insurance policy, the mortgagor needs to be informed accordingly.
the lack of building regulation approval indemnity insurance policy must not incorporate conditions that you are aware would void or prejudice the interests of the mortgage company
the lack of building regulation approval indemnity insurance policy should be effected without charge to the bank
you is duty bound to spell out to the borrower that the borrower will need to 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 must supply a copy of the lack of building regulation approval indemnity insurance to the borrower and explain to the mortgagor why the lack of building regulation approval indemnity insurance policy was effected and that additional insurance could be required if there is supplemental lending against the mortgaged property
the minimum level of cover for the policy must meet the requirements for the bank (see UK Finance Lenders’ Handbook Part 2 )
your firm must reveal to the insurer all relevant information which you have gathered

Regarding the extent 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 banks:

Lender	Requirement
Bank of Ireland	The limit of indemnity must be an amount not less than the market value of the property.
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.
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.
Cynergy Bank	The market value of the property.
Furness Building Society	Property valuation or purchase price, whichever the greater.
Hampden	The open market value of the property according to the valuation report.
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.
ITL Mortgages	Minimum of the value of the property.
Kent Reliance	An amount at least equal to 110% of the mortgage valuation.
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.
M&S Bank	the value of the insurance must be for at least the full value of the property
National Westminster Bank	An amount equal to the value of the property.
New Street Mortgages	Must be for a minimum of 110% of the purchase price or valuation whichever is the greatest.
Progressive BS	The limit of indemnity insurance should be the purchase price or valuation - whichever is higher.
Reliance Bank	\xA31,000,000.00
Rooftop Mortgages	The value of the property for mortgage purposes as disclosed in the valuation.
Saffron Building Society	Higher of purchase price or valuation. 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).
Secure Trust Bank	An amount at least equal to the market value. 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).
Royal Bank of Scotland -Natwest One	An amount equal to the value of the property.

Lack of Building Regulation Approval Contingency Insurance : Reflections

The extent of the terms for lack of building regulation approval indemnity insurance are explained in the policy paperwork. Conveyancing Practitioners should point the borrower to the lack of building regulation approval indemnity insurance policy itself. The intention of lack of building regulation approval indemnity insurance is to grant indemnity in respect of the risks specified in the policy schedule - so you should check the schedule to ensure it is correct. The continuance of this non-investment insurance contract is in perpetuity unless otherwise stated in the lack of building regulation approval indemnity insurance policy. Adequacy in this regard should be checked.

Significant characteristics and benefits of lack of building regulation approval Contingency insurance :

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. Lack of Building Regulation Approval indemnity insurance Policies are likely to cover the following

Loss in market value resulting from the successful enforcement of the risks specified in the lack of building regulation approval insurance.
All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
The cost of works (including professional fees) for the purpose of the development started, before the commencement of proceedings for the enforcement of the risks specified in the lack of building regulation approval insurance, to the extent that such costs are rendered abortive by court order.
Money paid with consent in writing from the insurance company to free the land from the risks specified in the lack of building regulation approval indemnity insurance.
Liability for damages or compensation incurred in any proceedings in respect of the risks specified in the lack of building regulation approval insurance, including legal and associated costs.
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.

Don't forget to check what is excluded from the lack of building regulation approval indemnity insurance e.g. does the policy cover any property that has been altered within the year prior to the policy being put on risk? Does it cover legal costs?

Further considerations for lack of building regulation approval indemnity insurance

Lack of Building Regulation Approval 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 lack of building regulation approval 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 bank approved panel, it does not constitute advice for members of the public who should contact their lawyer for advice relating to the bank 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 above information covers to properties in England and Wales.