Mortgage Company conveyancing panel conditions re Restrictive Covenant Indemnity Insurance
Birmingham Midshires and HSBC, in common with most banks, have their own requirements when it comes to restrictive covenant indemnity insurance. This page sets out to enlighten residential conveyancing lawyers on the various mortgage company approved list of panel lawyers where the title for the the property to be mortgaged includes restrictive covenant. Lawyers are advised to familiarise themselves with the Council of Mortgage Lenders’ handbook requirements for each lender, be it Yorkshire Bank Home Loans, Santander or Chelsea BS. The content 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 solicitor on a bank panel you must enquire whether the property has been built, altered or is currently used in contravention of a restrictive covenant. Banks such as Birmingham Midshires, HSBC or Yorkshire Bank Home Loans rely on you to investigate whether the covenant is not enforceable. Should you be unable to provide an unqualified COT 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 Contingency insurance is on risk on the completion date of the mortgage (see UK Finance Lenders’ Handbook section 9).
Should your investigations reveal proof of a breach and, following reasonable due diligence, you are satisfied that the title is good and marketable ; you can provide an unqualified certificate of title to the lender and the breach has remained in existence in excess 20 years unchallenged, then restrictive covenant indemnity insurance will not be mandated by the mortgage company.
Godiva Mortgages and Yorkshire Building Society in common with the majority of lenders, requirements are that where restrictive covenant indemnity insurance is to be taken out:
- the level of indemnity must satisfy the requirements for the lender (see UK Finance Lenders’ Handbook Part 2 )
- the restrictive covenant indemnity insurance policy must be placed on risk without cost to the mortgage company
- the restrictive covenant indemnity insurance policy should always be in favor of the mortgage company and, if possible, in favour of the borrower and any subsequent registered proprietor or bank. If the mortgagor will not be protected by the restrictive covenant indemnity insurance policy, the mortgagor needs to be advised accordingly.
- your practice are responsible for approving the terms of the restrictive covenant policy on behalf of the lender
- your firm must explain to the borrower that the borrower must adhere to any conditions of the restrictive covenant indemnity insurance policy and that the mortgagor should notify the lender of any notice or potential claim in respect of the policy
- you is obliged to reveal to the insurer all relevant information which you have obtained
- your firm must supply a duplicate of the restrictive covenant indemnity insurance to the mortgagor and explain to the borrower why the restrictive covenant indemnity insurance policy was effected and that a further policy could be necessary if there is supplemental borrowing against the security of the property
- the restrictive covenant indemnity insurance policy should not incorporate conditions that you know would invalidate or prejudice the interests of the lender
| Lender | Requirement |
|---|---|
| Ahli United Bank | An amount equal to the value of the Mortgaged Property |
| 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). Where a property is being sold at undervalue and an equity gift is being provided, the conveyancer must ensure the seller obtains an Insolvency Act Indemnity Insurance Policy and provides evidence to you, so that you are comfortable an appropriate policy is in place to Aldermore’s satisfaction. This indemnity insurance aims to cover Aldermore against any future claims by creditors of the seller that may challenge the sale. |
| Bank of China | Cover to full value of the property or the Mortgage Advance, whichever is the higher. |
| Bank of Ireland Mortgages | The limit of indemnity must be an amount not less than the market value of the property. |
| Bank of Scotland Private | [This lender has not published an answer to this question. Please contact the lender.]
|
| Better HomeOwnership | An amount to cover the mortgage advance as a minimum. |
| Bradford & Bingley | Amount of loan + 15% |
| First Direct | The value of the insurance must be for at least the full value of the property |
| Foundation Home loans | An amount equal to 110% of the valuation or purchase price - whichever is the greater. |
| Hampden | The open market value of the property according to the valuation report. |
| 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. |
| M&S Bank | the value of the insurance must be for at least the full value of the property |
| Sainsbury's Bank | An amount equal to the higher of the value of the property or the purchase price. |
| TSB | The value of the property |
| The Mortgage Business | An amount at least equal to the mortgage advance/credit limit - whichever is the highest. |
| The Mortgage Lender | An amount at least equal to the mortgage advance. |
| Royal Bank of Scotland | An amount equal to the value of the property. |
| RBS - Direct Line One | An amount equal to the value of the property. |
General Restrictive Covenant indemnity insurance points to consider
The full terms, conditions and exclusions for restrictive covenant indemnity insurance are explained in the policy paperwork. 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 specified in the policy schedule - so it’s important to check any draft to determine that it is correct. The duration of this non-investment insurance agreement is in perpetuity unless the policy says something to the contrary. Adequacy in this regard should be checked.Restrictive Covenant Contingency insurance: Important aspects and benefits:
The policy will normally cover where someone claims to be entitled to the benefit of the specified risks, stated in the restrictive covenant indemnity insurance schedule. Restrictive Covenant indemnity insurance Cover normally includes- Diminution in value due to the successful enforcement of the risks specified in the restrictive covenant indemnity insurance.
- All sums paid with consent in writing from the insurance company to free the land from the risks specified in the restrictive covenant insurance.
- All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
- The cost 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.
- Liability for damages or compensation incurred in any proceedings in respect of the risks specified in the restrictive covenant insurance, as well as solicitors charges.
- 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 restrictive covenant policy, to the extent that such costs are rendered abortive by court decision.
Don't forget to consider what is excluded from the restrictive covenant policy e.g. does the policy cover any residence that has been altered within the 12 months prior to the commencement of the policy? Are legal costs covered?
Supplemental considerations for restrictive covenant indemnity insurance
Bear in mind, that if a covenant is breached and changes have to be made, simply getting monetary compensation from restrictive covenant insurance may be adequate for your client.For example, extensions creating a granny annex may have to be destroyed but indemnity insurance cannot compensate for the loss of separate but adjoining accommodation for an elderly relative in need of care. the mortgage company 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 covers to properties in England and Wales.