Indemnity Insurance of Outstanding Leasehold Interest Bank conveyancing obligations

Coventry BS and Godiva Mortgages, in common with many mortgage companies, dictate their own specific instructions when it comes to outstanding leasehold interest indemnity insurance. The purpose of this page to assist conveyancing firms on the various bank conveyancing panel where the title for the the property to be mortgaged contains outstanding leasehold interest. It is not a substitute for checking the CML handbook requirements for each bank, whether it be Nationwide, Lloyds TSB or Yorkshire Bank Home Loans. The content on this page is not focused on outstanding leasehold interest indemnity insurance requirements.

Need help with outstanding leasehold interest indemnity insurance from your lender?

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Chelsea BS and Birmingham Midshires as with many mortgage companies, instructions are such that where outstanding leasehold interest indemnity insurance is to be put on risk:

• the outstanding leasehold interest indemnity insurance policy needs to be in favor of the bank and, wherever possible, for the benefit of the mortgagor and any subsequent owner or mortgagee. Where the mortgagor will not be covered by the outstanding leasehold interest indemnity insurance policy, the mortgagor should be informed accordingly.
• your practice must send a copy of the outstanding leasehold interest indemnity insurance to the borrower and explain to the mortgagor why the outstanding leasehold interest indemnity insurance policy was effected and that additional insurance could be necessary if there is further lending against the mortgaged property
• your practice must approve the terms of the outstanding leasehold interest policy on behalf of the bank
• your firm must disclose to the insurer all relevant information which you have acquired
• the level of indemnity must satisfy the requirements for the lender (see UK Finance Lenders’ Handbook Part 2 )
• the outstanding leasehold interest indemnity insurance policy must not incorporate terms that you are aware would invalidate or compromise the interests of the bank
• your practice must spell out to the mortgagor that the borrower is obliged to adhere to any conditions of the outstanding leasehold interest indemnity insurance policy and that the mortgagor should notify the bank of any notice or potential claim in respect of the policy
• the outstanding leasehold interest indemnity insurance policy must be placed on risk without cost to the bank

Regarding the extent of cover for the outstanding leasehold interest 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:

Outstanding Leasehold Interest Contingency Insurance : Reflections

The full terms, conditions and exclusions for outstanding leasehold interest indemnity insurance are identified in the policy document. Conveyancing Practitioners should point the borrower to the outstanding leasehold interest indemnity insurance policy document. The intention of outstanding leasehold interest indemnity insurance is to provide indemnity in respect of the risks set out in the policy schedule - so it’s important to check the document to determine that it is in order. The duration of this non-investment insurance contract 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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Important characteristics and benefits of outstanding leasehold interest indemnity insurance :

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. Outstanding Leasehold Interest indemnity insurance Policies should be checked for the following

• Money paid with consent in writing from the insurance company to liberate the land from the risks specified in the outstanding leasehold interest policy.
• The out of pocket expenses 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.
• Liability for damages or compensation incurred in any action concerning the risks specified in the outstanding leasehold interest insurance, as well as legal and associated costs.
• All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
• Loss in market value due to the successful enforcement of the risks specified in the outstanding leasehold interest policy.
• Expenses for works (including professional 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 outstanding leasehold interest policy, to the extent that such costs are rendered abortive by court order.

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Don't forget to check what is not included in the outstanding leasehold interest indemnity insurance e.g. does the policy cover any property that has been altered within the year prior to the commencement of the policy? Does it cover legal costs?

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Other considerations for outstanding leasehold interest indemnity insurance

Outstanding Leasehold Interest insurance may satisfy lenders such as Barclays or Skipton and prevent clients from from suffering financially but it cannot compensate for the stress and inconvenience the emotional suffering - after all the value of a home cannot always be measured in cash in the eyes of the owner.

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