Restrictive Covenant Indemnity Insurance Bank conveyancing requirements
Bank of Scotland and Barnsley BS, in common with many lenders, have their own specific instructions when it comes to restrictive covenant indemnity insurance. The purpose of this page to assist conveyancing practitioners on the numerous mortgage company approved list of panel lawyers where the title for the the property to be mortgaged contains restrictive covenant. It is not a alternative for checking the Council of Mortgage Lenders’ handbook requirements for each lender, whether it be Godiva Mortgages, Yorkshire Bank Home Loans or Barclays. The information on this page is not focused on restrictive covenant indemnity insurance requirements.
Need help with restrictive covenant indemnity insurance from your lender?
In your capacity as a solicitor on a mortgage company panel you must conduct due diligence as to whether the property has been built, altered or is currently used in contravention of a restrictive covenant. Mortgage Companies such as Bank of Scotland, Barnsley BS or Godiva Mortgages rely on you to check that the covenant is not enforceable. If you are 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 indemnity insurance is on risk on completion of the mortgage (see UK Finance Lenders’ Handbook section 9).
In the event that you conclude that there is evidence of a breach and, following reasonable due diligence, you are assured that the title is good and marketable ; you are able to issue an unqualified certificate of title to the bank and the breach has continued for over 20 years unchallenged, then restrictive covenant indemnity insurance will not be mandated by the lender.
Natwest and Nationwide in common with the majority of banks, obligations require that where restrictive covenant indemnity insurance is to be taken out:
- your practice is duty bound to point out to the borrower that the borrower will need 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 relation to the insurance
- your firm must disclose to the insurer all relevant information which you have acquired
- your firm are responsible for approving the terms of the restrictive covenant policy on behalf of the bank
- the restrictive covenant indemnity insurance policy must be placed on risk at no expense to the lender
- the restrictive covenant indemnity insurance policy should not contain terms which you recognise would invalidate or compromise the interests of the lender
- the limit of indemnity must satisfy the requirements for the lender (See Part II Handbook requirements )
- your practice must send a copy 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 additional insurance may be necessary if there is supplemental lending against the security of the property
- the restrictive covenant indemnity insurance policy needs to be for the benefit of the mortgage company and, if possible, in favour of the mortgagor and any future registered proprietor or mortgagee. If the borrower will not be protected by the restrictive covenant indemnity insurance policy, you must advise the borrower of this fact.
| 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). 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 Scotland | Not less than mortgage advance plus 10% |
| Bank of Scotland | Not less than mortgage advance plus 10% |
| Better HomeOwnership | An amount to cover the mortgage advance as a minimum. |
| Family Building Society | An amount at least equal to the mortgage advance. |
| Gen H | An amount equal to the value of the property unless specifically agreed in writing otherwise. |
| 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. |
| Keystone Property Finance | An amount equal to 110% of the valuation or purchase price - whichever is the greater |
| MPowered Mortgages | Either the minimum reinstatement value or where there is no valuation the market value/purchase price figure (whichever is higher). |
| 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. |
| Mortgage Express | Amount of loan + 15% |
| New Street Mortgages | Must be for a minimum of 110% of the purchase price or valuation whichever is the greatest. |
| Principality Building Society | Full market value of the property is preferred but if this is not available we will accept the loan advance amount as minimum. You must approve the policy on our behalf. The estimated property value is stated in the Mortgage Offer in remortgage cases. Otherwise it will be stipulated in the Valuation. |
| Rely Mortgages | An amount at least equal to 110% of the mortgage valuation. |
| Rooftop Mortgages | The value of the property for mortgage purposes as disclosed in the valuation. |
| 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. |
| The Mortgage Business | An amount at least equal to the mortgage advance/credit limit - whichever is the highest. |
| RBS- First Active | An amount equal to the value of the property. |
| Yorkshire Bank | Open market value of property. |
Restrictive Covenant Contingency Insurance : Reflections
The extent of the terms for restrictive covenant indemnity insurance are explained in the policy document. Conveyancing solicitors should direct the borrower to the restrictive covenant indemnity insurance policy document. The intention of restrictive covenant indemnity insurance is to provide indemnity in respect of the risks set out in the policy schedule - so it is essential check any draft to ensure it is correct. The continuance of this non-investment insurance agreement is in perpetuity unless otherwise stated in the restrictive covenant indemnity insurance policy. Again, please check that this is as you expected.Restrictive Covenant Contingency insurance: Important characteristics 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 Policies should be checked for the following- The cost of works (including architects’ and surveyors’ 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 restrictive covenant policy, to the extent that such costs are rendered abortive by court decision.
- Reimbursement for compensation incurred in any action in respect of the risks specified in the restrictive covenant indemnity insurance, as well as solicitors charges.
- Loss in market value resulting from the successful enforcement of the risks specified in the restrictive covenant insurance.
- All sums paid with the written consent of the insurance company to free the property 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 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.
Due diligence should extend to checking that the answers on the application form are accurate. Regardless of how remote a claim on the mortgage company insurance policy might be you can rest assured that the insurer will check the details on any proposal form thoroughly before any claim is admitted.
Further 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 instance if your client has to significantly change their dream home, they may feel that they would have been better of not buying in the first place.
Information contained within this webpage is for general information for Regulated law firms in England and Wales on the the lender conveyancing panel, it does not constitute advice for members of the public who should contact their lawyer for advice relating to the lender indemnity insurance. Whilst we endeavour to keep the information up to date and correct we do not make any representation or warranties of any kind about its completeness, accuracy, reliability or suitability. Any reliance you place on the information is strictly at your own risk. Lexsure will not be liable for any direct or indirect loss or damage arising out of or in connection with the use of this information. An important exclusion applying to most restrictive covenant Policies is if you make any contact with any party who might cause a claim under the Policy, it can invalidate the cover.
The above information covers to properties in England and Wales.