Restrictive Covenant Indemnity Insurance Lender conveyancing requirements

Skipton and Barnsley BS, in common with most mortgage companies, set their own specific instructions when it comes to restrictive covenant indemnity insurance. The content herein aims to help residential conveyancing practitioners on the various bank conveyancing panel where the title to be charged contains restrictive covenant. Solicitors should still check the Council of Mortgage Lenders’ handbook requirements for each bank, whether it be Birmingham Midshires, Lloyds TSB or Barclays. The content on this page is not focused on restrictive covenant indemnity insurance requirements.

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In your capacity as a conveyancing practitioner on a bank 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. Banks such as Skipton, Barnsley BS or Birmingham Midshires rely on you to investigate whether the covenant is not enforceable. If you are unable to provide an unqualified certificate of title to the mortgage company 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 the completion date of the mortgage (see UK Finance Lenders’ Handbook section 9).

In the event that you conclude that there is proof of a breach and, only after reasonable enquiries, you are assured that there is a good and marketable title ; you are in a position to submit an unconditional COT to the mortgage company and the breach has remained in existence in excess twenty years unchallenged, then restrictive covenant indemnity insurance will not be insisted upon by the mortgage company.

Godiva Mortgages and Accord like most mortgage companies, instructions are such that where restrictive covenant indemnity insurance is to be put on risk:

the minimum level of cover for the policy must satisfy the requirements for the lender (See Part II Handbook requirements )
your practice is duty bound to point out to the borrower that the borrower will need to adhere to any conditions of the restrictive covenant indemnity insurance policy and that the mortgagor should notify the bank of any notice or potential claim in respect of the insurance
the restrictive covenant indemnity insurance policy should be placed on risk without cost to the lender
the restrictive covenant indemnity insurance policy must not contain terms that you recognise would invalidate or compromise the interests of the mortgage company
your firm must supply a duplicate of the restrictive covenant indemnity insurance to the borrower and explain to the borrower why the restrictive covenant indemnity insurance policy was effected and that a further policy might be required if there is additional lending against the mortgaged property
you is required to reveal to the insurer all relevant information which you have gathered
your firm are responsible for approving the terms of the restrictive covenant policy on behalf of the mortgage company
the restrictive covenant indemnity insurance policy must be in favor of the bank and, wherever possible, in favour of the borrower and any future owner or mortgage company. If the mortgagor will not be covered by the restrictive covenant indemnity insurance policy, the mortgagor should be advised accordingly.

Regarding the extent of cover for the restrictive covenant 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:

Lender	Requirement
Bank of Ireland	The limit of indemnity must be an amount not less than the market value of the property.
Chelsea Building Society	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 mortgagee.
Cynergy Bank	The market value of the property.
Danske Bank	The limit of indemnity insurance should be the purchase price or valuation - whichever is higher
Family Building Society	An amount at least equal to the mortgage advance.
Foundation Home loans	An amount equal to 110% of the valuation or purchase price - whichever is the greater.
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.
Landmark	Preference for full market value of the property, but if this level of cover is not available, will accept a minimum of the actual loan amount. You must approve the policy on our behalf.
LendInvest	An amount at least equal to the valuation of the property.
Nedbank	You are to refer to us for specific instructions on any matter involving indemnity insurance.
New Street Mortgages	Must be for a minimum of 110% of the purchase price or valuation whichever is the greatest.
Paratus	An amount equal to 110% of the valuation or purchase price - whichever is the greater.
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.
TSB	The value of the property
Tandem Bank	An amount at least equal to 110% of the purchase price or valuation – whichever is the greater.
RBS - Direct Line	An amount equal to the value of the property.
RBS - Direct Line One	An amount equal to the value of the property.
RBS- First Active	An amount equal to the value of the property.
Yorkshire Building Society	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 mortgagee.

Non lender-specific considerations

The extent of the terms for restrictive covenant indemnity insurance are identified in the policy paperwork. Property lawyers should direct your non-lender client to the restrictive covenant indemnity insurance policy itself. The intention of restrictive covenant indemnity insurance is to grant indemnity in respect of the risks specified in the policy schedule - so it is essential check the schedule 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. Again, please check that this is as you expected.

Restrictive Covenant Contingency insurance: Significant aspects and benefits:

The insurance 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 Policies should be checked for the following

Money paid with consent in writing from the insurance company to liberate the property from the risks specified in the restrictive covenant policy.
Diminution in value resulting from the successful enforcement of the risks specified in the restrictive covenant policy.
Expenses for works (including architects’ and surveyors’ fees) for the purpose of the development begun, or contracted for, prior to proceedings for the enforcement of the risks specified in the restrictive covenant insurance, to the extent that such costs are rendered abortive by court order.
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.
Cover for compensation incurred in any action regarding the risks specified in the restrictive covenant insurance, as well as legal and associated costs.
All other costs and expenses incurred by the Insured with consent in writing from the relevant insurer

As is the case with all conventional insurance, all material information needs to be disclosed to the insurance company at the outset and throughout the policy term, otherwise the restrictive covenant policy will not be valid.

Restrictive Covenant Indemnity Insurance has limitations - Further considerations

Restrictive Covenant insurance may satisfy lenders such as Halifax or Nationwide 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 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.

Content on this webpage is for general information for Regulated law firms in England and Wales on the the bank solicitor panel, it does not constitute advice for members of the public who should contact their lawyer for advice relating to the bank 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. Do not attempt to contact the person who you think may have the benefit of the restrictive covenant as insurers will almost always invariably refuse to insure if there has been any attempt in this respect. Once you have approached the other party insurance may well become impossible and this would in all likelihood close down indemnity insurance as an option of addressing the restrictive covenant problem.

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