Indemnity Insurance of Outstanding Rights of Common Bank conveyancing requirements

Chelsea BS and Yorkshire Building Society, like most lenders, have their own requirements when it comes to outstanding rights of common indemnity insurance. The content herein aims to help domestic conveyancing solicitors on the various bank conveyancing panel where the title to be charged contains outstanding rights of common. Solicitors should still check the CML handbook requirements for each mortgage company, for example Godiva Mortgages, Lloyds TSB or Bank of Scotland. The information on this page is not focused on outstanding rights of common indemnity insurance requirements.

Need help with outstanding rights of common indemnity insurance from your lender?

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Halifax and Natwest like most lenders, obligations require that where outstanding rights of common indemnity insurance is to be taken out:

• the outstanding rights of common indemnity insurance policy needs to be for the benefit of the bank and, wherever possible, in favour of the mortgagor and any future owner or mortgage company. Where the mortgagor will not be covered by the outstanding rights of common indemnity insurance policy, you must advise the borrower of this fact.
• you must supply a duplicate of the outstanding rights of common indemnity insurance to the mortgagor and explain to the mortgagor why the outstanding rights of common indemnity insurance policy was effected and that a further policy could be mandatory if there is additional borrowing against the security of the property
• your practice must point out to the borrower that the borrower must adhere to any conditions of the outstanding rights of common indemnity insurance policy and that the mortgagor should notify the bank of any notice or potential claim in respect of the insurance
• you are responsible for approving the terms of the outstanding rights of common policy on behalf of the bank
• your firm is required to reveal to the insurer all relevant information which you have obtained
• the outstanding rights of common indemnity insurance policy should be effected without cost to the bank
• the limit of indemnity must meet the requirements for the mortgage company (see UK Finance Lenders’ Handbook Part 2 )
• the outstanding rights of common indemnity insurance policy should not incorporate terms which you know would invalidate or prejudice the interests of the lender

As to the level of cover for the outstanding rights of common indemnity insurance policy (or for that matter any indemnity insurance), consider the following sampling of Section 9.2 of the CML handbook PII requirements for lenders:

Non lender-specific considerations

The extent of the terms for outstanding rights of common indemnity insurance are shown in the policy document. Conveyancing solicitors should direct your non-lender client to the outstanding rights of common indemnity insurance policy document. Outstanding Rights of Common indemnity insurance is devised to grant indemnity in respect of the risks set out in the policy schedule - so it is essential check the schedule to ensure it is in order. The duration of this non-investment insurance agreement is in perpetuity unless otherwise stated in the outstanding rights of common indemnity insurance policy. It is well worth checking that the time frame is correct.

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Outstanding Rights of Common indemnity insurance: Significant aspects and benefits:

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 Rights of Common indemnity insurance Policies are likely to cover the following

• All sums paid with consent in writing from the insurance company to free the land from the risks specified in the outstanding rights of common indemnity insurance.
• Market value reduction resulting from the successful enforcement of the risks specified in the outstanding rights of common policy.
• Expenses for works (including architects’ and surveyors’ fees) for the purpose of the development started, before the commencement of proceedings for the enforcement of the risks specified in the outstanding rights of common insurance, to the extent that such costs are rendered abortive by court decision.
• All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
• Reimbursement for compensation incurred in any action regarding the risks specified in the outstanding rights of common policy, as well as incurred costs and expenses.
• The out of pocket expenses of altering or destroying 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.

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Always check what is excluded from the outstanding rights of common insurance e.g. does the policy cover any property that has been altered within the 12 months prior to the commencement of the policy? Are legal costs covered?

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Supplemental considerations for outstanding rights of common indemnity insurance

There may be consequences arising from the enforcement of the risks identified in the outstanding rights of common indemnity insurance which are not adequately covered by financial compensation.

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