Lack of Building Regulation Approval Indemnity Insurance Bank conveyancing requirements

HSBC and RBS, as with most lenders, set their own specific instructions when it comes to lack of building regulation approval indemnity insurance. The purpose of this page to assist conveyancing solicitors on the different lender solicitors panel where the title for the the property to be mortgaged incorporates lack of building regulation approval. Solicitors should still check the CML handbook requirements for each lender, for example Virgin Money, Yorkshire Bank Home Loans or Lloyds TSB. The information on this page is not focused on lack of building regulation approval indemnity insurance requirements.

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In your capacity as a property lawyer on a bank panel you must make appropriate searches and enquiries take all reasonable steps (including any additional enquiries to clarify any issues which may arise) to ensure the property or any works thereto has the benefit of any necessary Building Regulation Approval and that the property may be the subject of enforcement proceedings.

If there is evidence of such a breach or matter but in your professional opinion there is no reasonable likelihood of enforcement action and, following appropriate enquiries, and you are satisfied that that the title is uncompromised and are able to issue an unconditional certificate of title, the mortgage company may not insist on 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 certificate of title, you should reveal this to the lender in accordance with 2.3. of the UK Finance Lenders’ Handbook P2. Each lender such as HSBC or RBS may adopt a different stance.

About Lack of Building Regulation Approval Indemnity Insurance

Lack of Building Regulation Approval Indemnity Insurance is typically required where no evidence of building regulation consent can be supplied for works (or FENSA certificate for windows) that have existed for 12 months or more, whether a domestic residence or large commercial project. The loss arises following successful enforcement proceedings by the local authority. In a typical conveyancing scenario the owner would be expected to cover the costs of the Lack of Building Regulation Approval Indemnity Insurance, which would be taken out in the purchaser’s name as well as the mortgage company.

A lack of building regulation approval indemnity insurance policy is normally less expensive than applying for retrospective consent and is undoubtedly much quicker. The flipside is that the risk of enforcement action still remains.

Leeds Building Society and Birmingham Midshires in common with many lenders, instructions are such that where lack of building regulation approval indemnity insurance is effected:

the minimum level of cover for the policy must meet the requirements for the bank (See Part II Handbook requirements )
the lack of building regulation approval indemnity insurance policy should be placed on risk at no cost to the mortgage company
the lack of building regulation approval indemnity insurance policy should always be in favor of the mortgage company and, wherever possible, in favour of the mortgagor and any subsequent registered proprietor or lender. If the borrower will not be protected by the lack of building regulation approval indemnity insurance policy, the mortgagor should be advised accordingly.
your firm must send a duplicate of the lack of building regulation approval indemnity insurance to the mortgagor and explain to the mortgagor why the lack of building regulation approval indemnity insurance policy was effected and that additional insurance might be necessary if there is additional borrowing against the security of the property
your practice is required to disclose to the insurer all relevant information which you have obtained
you is duty bound to explain to the mortgagor that the borrower will need to comply with 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 relation to the policy
your practice must approve the terms of the lack of building regulation approval policy on behalf of the lender
the lack of building regulation approval indemnity insurance policy should not incorporate terms that you know would invalidate or prejudice the interests of the lender

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 Paragraph 9.2 of the CML handbook PII requirements for mortgage companies:

Lender	Requirement
Ahli United Bank	An amount equal to the value of the Mortgaged Property
Atom Bank	At least the open market value of the property according to the valuation report.
Danske Bank	The limit of indemnity insurance should be the purchase price or valuation - whichever is higher
Darlington Building Society	The higher of value or purchase price of the property.
Dudley Building Society	Purchase price or valuation, whichever is higher.
First Direct	The value of the insurance must be for at least the full value of the property
Fleet Mortgages	An amount at least equal to the valuation of the property.
Foundation Home loans	An amount equal to 110% of the valuation or purchase price - whichever is the greater.
Holmesdale Building Society	110%
LendInvest	An amount at least equal to the valuation of the property.
Magellan Homeloans	At least equal to the value of the property
Metro Bank	The open market value of the property according to the valuation report.
Monmouthshire Building Society	The higher of the purchase price or valuation. For remortgages, the value of the advance.
Mortgage Agency Services	110% of the purchase price or valuation, whichever is greater
National Counties Building Society	An amount at least equal to the mortgage advance.
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.
State Bank of India UK	The purchase price or value of the property, whichever is the higher.
RBS- First Active	An amount equal to the value of the property.
Topaz Finance	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 extent of the terms for lack of building regulation approval indemnity insurance are identified in the policy paperwork. Conveyancing solicitors should point your non-lender client to the lack of building regulation approval indemnity insurance policy document. 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 document to ensure it is correct. The lifetime 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 aspects and benefits of lack of building regulation approval Contingency insurance :

The insurance will normally cover where someone claims to be entitled to the benefit of the specified risks, stated in the lack of building regulation approval indemnity insurance schedule. Lack of Building Regulation Approval indemnity insurance Cover normally includes

Reimbursement for compensation incurred in any proceedings in respect of the risks specified in the lack of building regulation approval indemnity insurance, including solicitors charges.
All sums paid with the written consent of the insurance company to free the land from the risks specified in the lack of building regulation approval policy.
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.
All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurer
Expenses for works (including architects’ and surveyors’ fees) for the purpose of the development begun, or contracted for, before the commencement of proceedings for the enforcement of the risks specified in the lack of building regulation approval indemnity insurance, to the extent that such costs are rendered abortive by court decision.
Diminution in value resulting from the successful enforcement of the risks specified in the lack of building regulation approval policy.

Due diligence should extend to checking that the answers on the application form are correct. 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 admitted.

Lack of Building Regulation Approval Indemnity Insurance has limitations - Other 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.

Information contained within this webpage is for general information for conveyancers and solicitors in England and Wales on the the bank solicitor 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.