Indemnity Insurance of Lack of Building Regulation Approval Mortgage Company conveyancing obligations

Halifax and Barclays, as with the majority of mortgage companies, set their own requirements when it comes to lack of building regulation approval indemnity insurance. The purpose of this page to assist conveyancing firms on the numerous bank approved list of panel lawyers where the title for the the property to be mortgaged contains lack of building regulation approval. It is not a substitute for checking the CML handbook requirements for each lender, be it Yorkshire Building Society, Skipton or Coventry BS. The content on this page is not focused on lack of building regulation approval indemnity insurance requirements.

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Being a conveyancing lawyer on a bank panel you must investigate (including any supplemental investigations 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.

If there is evidence of such a breach or matter but in your professional judgment there is no reasonable chance of enforcement action and, following reasonable enquiries, and you are assured that that the title is uncompromised and are in a position to submit an unconditional certificate of title, the mortgage company may 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 certificate of title, you should report this to the mortgage company in accordance with 2.3. of the UK Finance Lenders’ Handbook P2. Each lender such as Halifax or Barclays may adopt a different stance.

About Lack of Building Regulation Approval Indemnity Insurance

Lack of Building Regulation Approval Cover is typically required where no proof of building regulation consent can be produced for alterations (or FENSA certificate for windows) that have been in existence for a year or more, whether a domestic property or large commercial project. The loss arises following successful enforcement action 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 purchaser’s name as well as the bank.

A lack of building regulation approval indemnity insurance policy is ordinarily cheaper than obtaining retrospective approval and is undoubtedly much quicker. The downside is that the risk of enforcement action still remains.

RBS and Accord as with many mortgage companies, instructions are such that where lack of building regulation approval indemnity insurance is effected:

you must supply a duplicate 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 further borrowing against the mortgaged property
the lack of building regulation approval indemnity insurance policy should be placed on risk without expense to the lender
you is obliged to reveal to the insurer all relevant information which you have gathered
the lack of building regulation approval indemnity insurance policy must not incorporate terms that you recognise would invalidate or compromise the interests of the mortgage company
you are responsible for approving the terms of the lack of building regulation approval policy on behalf of the lender
your firm must point out 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 mortgagor should notify the mortgage company of any notice or potential claim in relation to the policy
the minimum level of cover for the policy must meet the requirements for the mortgage company (See Part II Handbook requirements )
the lack of building regulation approval indemnity insurance policy should always be for the benefit of the mortgage company and, if possible, for the benefit of the borrower and any next registered proprietor or lender. Where the borrower will not be covered by the lack of building regulation approval indemnity insurance policy, the mortgagor needs to be advised accordingly.

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 mortgage companies:

Lender	Requirement
Adam & Company	The open market value of the property according to the valuation report.
April Mortgages	An amount at least equal to the mortgage advance.
Bank of Ireland Mortgages	The limit of indemnity must be an amount not less than the market value of the property.
DB UK Bank	An amount at least equal to the mortgage advance or credit limit, whichever the higher. The policy must be assignable
Family Building Society	An amount at least equal to the mortgage advance.
Harpenden Building Society	110% of mortgage advance
ITL Mortgages	Minimum of the value of the property.
Landmark	Preference for full market value of the property, but if this level of cover is not available, will accept a minimum of the actual loan amount. You must approve the policy on our behalf.
Lloyds	The value of the property.
Molo Finance 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 mortgages.
Mortgage Express	Amount of loan + 15%
Nationwide Building Society	Purchase Price (valuation if price is at a discount). Contact Issuing Office for advice on a remortgage
Paragon Mortgages Ltd	An amount at least equal to the stated value of the Property.
Skipton Building Society	For lender only cover we will accept a minimum of 110% (index-linked) of the amount of the loan.
The Mortgage Business	An amount at least equal to the mortgage advance/credit limit - whichever is the highest.
Royal Bank of Scotland	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.
Yorkshire Bank	Open market value of property.

General Lack of Building Regulation Approval indemnity insurance points to consider

The extent of the terms for lack of building regulation approval indemnity insurance are identified in the policy document. Property lawyers should point the borrower to the lack of building regulation approval indemnity insurance policy itself. Lack of Building Regulation Approval indemnity insurance is designed to grant indemnity in respect of the risks set out in the policy schedule - so you should check any draft to ensure it is correct. The duration of this non-investment insurance agreement is in perpetuity unless the policy says something to the contrary. It is well worth checking that the time frame is correct.

Important characteristics 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 Policies are likely to cover the following

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 indemnity insurance.
All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurer
Reimbursement for compensation incurred in any action regarding the risks specified in the lack of building regulation approval indemnity insurance, including incurred costs and expenses.
Diminution in value resulting from the successful enforcement of the risks specified in the lack of building regulation approval insurance.
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.
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.

As with any insurance policy, all material information needs to be disclosed to the insurance company at the outset and throughout the policy term, otherwise the lack of building regulation approval policy will not be valid.

Lack of Building Regulation Approval Indemnity Insurance has limitations - Further considerations

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 provided on this webpage is for general information for Regulated law firms in England and Wales on the the bank conveyancing panel, it does not constitute advice for members of the public who should contact their lawyer for advice relating to the mortgage company 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 is in relation to properties in England and Wales.