Restrictive Covenant Indemnity Insurance Bank conveyancing requirements
Coventry BS and Natwest, as with most lenders, set their own requirements when it comes to restrictive covenant indemnity insurance. The content herein aims to help conveyancing solicitors on the numerous mortgage company solicitors panel where the title for the the property to be mortgaged includes restrictive covenant. Lawyers are advised to familiarise themselves with the CML handbook requirements for each mortgage company, be it Nationwide, Leeds Building Society or Barnsley BS. The information on this page Is not to be read as restrictive covenant indemnity insurance advice.
Need help with restrictive covenant indemnity insurance from your lender?
As a conveyancing practitioner on a mortgage company panel you must enquire whether the property has been built, altered or is currently used in breach of a restrictive covenant. Lenders such as Coventry BS, Natwest or Nationwide rely on you to check that the covenant is not enforceable. Should you be unable to provide an unqualified certificate of title to the lender as a result of the risk of enforceability you must ensure (subject to the UK Finance Lenders’ Handbook paragraph 5.11.2) that indemnity insurance is taken out on completion of the mortgage (see section 9 of the Council of Mortgage Lenders’ Handbook).
If there is evidence of a breach and, after having conducted reasonable enquiries, you are content that there is a good and marketable title ; you can provide an unqualified COT to the bank and the breach has continued in excess twenty years without challenge, then restrictive covenant indemnity insurance will not be mandated by the lender.
Lloyds TSB and Yorkshire Building Society like most banks, obligations require that where restrictive covenant indemnity insurance is to be taken out:
- the restrictive covenant indemnity insurance policy must not contain terms which you are aware would invalidate or prejudice the interests of the bank
- you must point out to the mortgagor that the borrower is obliged to comply with any conditions of the restrictive covenant indemnity insurance policy and that the mortgagor should notify the mortgage company of any notice or potential claim in respect of the policy
- the restrictive covenant indemnity insurance policy should always be in favor of the bank and, if possible, for the benefit of the mortgagor and any subsequent registered proprietor or mortgage company. Where the mortgagor will not be protected by the restrictive covenant indemnity insurance policy, you must advise the borrower of this fact.
- the restrictive covenant indemnity insurance policy must be placed on risk without charge to the lender
- you are responsible for approving the terms of the restrictive covenant policy on behalf of the bank
- your firm must reveal to the insurer all relevant information which you have obtained
- your firm must provide a duplicate of the restrictive covenant indemnity insurance to the mortgagor and explain to the mortgagor why the restrictive covenant indemnity insurance policy was effected and that additional insurance may be mandatory if there is additional lending against the mortgaged property
- the limit of indemnity must meet the requirements for the bank (See Part II Handbook requirements )
| Lender | Requirement |
|---|---|
| Aldermore Bank | 110% of the purchase price or valuation, whichever is greater. Any indemnity insurance policy must be for our benefit, that of any transferee/assignee (legal or equitable) of the mortgage and also the borrower(s). |
| April Mortgages | An amount at least equal to the mortgage advance. |
| Better HomeOwnership | An amount to cover the mortgage advance as a minimum. |
| Birmingham Bank | Please contact Head of Operations to discuss (Gareth Allen) |
| Bradford & Bingley | Amount of loan + 15% |
| Fleet Mortgages | An amount at least equal to the valuation of the property. |
| Gen H | An amount equal to the value of the property unless specifically agreed in writing otherwise. |
| Godiva Mortgages | Minimum of the value of the property. |
| HSBC UK Bank | The value of the insurance must be for at least the full value of the property |
| Hodge Equity Release | An amount equal to the purchase price or value, whichever is higher. Any indemnity insurance policy must be for our benefit, that of any transferee/assignee (legal or equitable) of the mortgage, the borrower(s) and any successor in Title. |
| Landbay Partners | An amount equal to 100% of the property valuation or purchase price (whichever is greater) plus 10%. |
| Leeds Building Society | An amount at least equal to the amount of the mortgage advance plus 10%. Any indemnity insurance policy must protect the borrowers, any successor in title and any Mortgagee. |
| ModaMortgages | An amount at least equal to 110% of the mortgage valuation. |
| 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. |
| Pepper Money | An amount equal to at least 110% of the purchase price or value, whichever is higher. Any indemnity insurance policy must be for our benefit, that of any transferee/assignee (legal or equitable) of the mortgage and also the borrower(s). |
| Pepper Money (UK) | An amount equal to at least 110% of the purchase price or value, whichever is higher. Any indemnity insurance policy must be for our benefit, that of any transferee/assignee (legal or equitable) of the mortgage and also the borrower(s). |
| Secure Trust Bank | An amount at least equal to the market value. Any indemnity insurance policy must be for our benefit, that of any transferee/assignee (legal or equitable) of the mortgage and also the borrower(s). |
| Skipton Building Society | For lender only cover we will accept a minimum of 110% (index-linked) of the amount of the loan. |
| St James Place | An amount at least equal to the total of the initial mortgage advance plus any pre-agreed reserve. These amounts will be shown in the mortgage offer. |
Non lender-specific considerations
The full terms, conditions and exclusions for restrictive covenant indemnity insurance are identified in the policy document. Property lawyers should point the borrower to the restrictive covenant indemnity insurance policy itself. Restrictive Covenant Contingency insurance is devised to grant indemnity in respect of the risks set out in the policy schedule - so it’s important to 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.Restrictive Covenant indemnity insurance: Significant aspects 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. Restrictive Covenant indemnity insurance Cover normally includes- 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.
- Expenses for works (including architects’ and surveyors’ fees) for the purpose of the development started, prior to proceedings for the enforcement of the risks specified in the restrictive covenant policy, 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
- Money paid with consent in writing from the insurance company to liberate the property from the risks specified in the restrictive covenant indemnity insurance.
- Cover for compensation incurred in any action concerning the risks specified in the restrictive covenant indemnity insurance, including incurred costs and expenses.
- Loss in market value due to the successful enforcement of the risks specified in the restrictive covenant indemnity insurance.
Always check what is not included in the restrictive covenant insurance e.g. does the policy cover any residence that has been altered within the 12 months prior to the policy being put on risk? Are legal costs covered?
Restrictive Covenant Indemnity Insurance has limitations - Further considerations
Restrictive Covenant insurance may satisfy lenders such as Barclays or Godiva Mortgages 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.For example, extensions creating a granny annex may have to be taken down but financial compensation does not recompense for the loss of separate but adjoining accommodation for an elderly relative who needs occasional care. the bank may not care about such consequences but your other client so consideration needs to be given to explain these potential implications.
The content set out above is in relation to properties in England and Wales.