Bank conveyancing panel requirements re Local Search Indemnity Insurance

Lloyds TSB and Leeds Building Society, like many banks, have their own requirements when it comes to local search indemnity insurance. This page is designed to help residential conveyancing solicitors on the numerous mortgage company solicitors panel where the title to be charged contains local search. Lawyers are advised to familiarise themselves with the Council of Mortgage Lenders’ handbook requirements for each lender, be it Chelsea BS, HSBC or Skipton. The information on this page is not focused on local search indemnity insurance requirements.

Need help with local search indemnity insurance from your lender?

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Santander and Natwest in common with the majority of lenders, requirements are that where local search indemnity insurance is effected:

• your practice must provide a duplicate of the local search indemnity insurance to the borrower and explain to the mortgagor why the local search indemnity insurance policy was effected and that additional insurance may be required if there is further borrowing against the security of the property
• your firm must disclose to the insurer all relevant information which you have gathered
• the local search indemnity insurance policy must be for the benefit of the mortgage company and, if possible, for the benefit of the mortgagor and any future registered proprietor or bank. Where the borrower will not be covered by the local search indemnity insurance policy, you must advise the mortgagor of this fact.
• the minimum level of cover for the policy must satisfy the requirements for the mortgage company (see UK Finance Lenders’ Handbook Part 2 )
• the local search indemnity insurance policy must not incorporate terms that you recognise would void or compromise the interests of the lender
• your firm must approve the terms of the local search policy on behalf of the bank
• your practice is duty bound to spell out to the mortgagor that the borrower is obliged to adhere to any conditions of the local search indemnity insurance policy and that the mortgagor should notify the lender of any notice or potential claim in relation to the policy
• the local search indemnity insurance policy should be effected at no cost to the lender

Regarding the extent of cover for the local search 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 lenders:

Non lender-specific considerations

The extent of the terms for local search indemnity insurance are shown in the policy paperwork. Property lawyers are obliged to point your non-lender client to the local search indemnity insurance policy paperwork. The intention of local search 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 agreement is in perpetuity unless the policy says something to the contrary. It is well worth checking that the time frame is correct.

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Local Search indemnity insurance: Significant features and benefits:

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. Local Search indemnity insurance Policies should be checked for the following

• Liability for damages or compensation incurred in any proceedings concerning the risks specified in the local search policy, including incurred costs and expenses.
• Expenses for 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 local search insurance, to the extent that such costs are rendered abortive by court order.
• All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
• 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.
• Diminution in value resulting from the successful enforcement of the risks specified in the local search indemnity insurance.
• Money paid with consent in writing from the insurance company to liberate the property from the risks specified in the local search insurance.

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As is the case with all conventional insurance, all material information needs to be disclosed to the insurance company at the outset and throughout the policy term, otherwise the local search policy will not be valid.

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Local Search Indemnity Insurance has limitations - Supplemental considerations

Local Search 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 local search indemnity cover will not necessarily be the answer.

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The content set out above is in relation to properties in England and Wales.