Restrictive Covenant Indemnity Insurance Mortgage Company conveyancing requirements
Chelsea BS and Yorkshire Bank Home Loans, like most mortgage companies, have their own specific instructions when it comes to restrictive covenant indemnity insurance. The content herein aims to help residential conveyancing firms on the different lender 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 CML handbook requirements for each mortgage company, whether it be Barclays, Yorkshire 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?
In your capacity as a conveyancing practitioner on a lender panel you must conduct due diligence as to whether the property has been built, altered or is currently used in breach of a restrictive covenant. Lenders such as Chelsea BS, Yorkshire Bank Home Loans or Barclays rely on you to check that the covenant is not enforceable. If you are unable to issue an unqualified certificate of title to the bank 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 taken out on completion of the mortgage (see UK Finance Lenders’ Handbook section 9).
In the event that you conclude that there is proof of a breach and, after having conducted reasonable enquiries, you are assured that the title is good and marketable ; you are able to issue an unqualified COT to the mortgage company and the breach has remained in existence for over 20 years unchallenged, then restrictive covenant indemnity insurance will not be insisted upon by the lender.
Birmingham Midshires and Virgin Money as with many banks, obligations require that where restrictive covenant indemnity insurance is to be put on risk:
- the limit of indemnity must meet the requirements for the lender (See Part II Handbook requirements )
- the restrictive covenant indemnity insurance policy must be in favor of the mortgage company and, wherever possible, in favour of the borrower and any subsequent registered proprietor or mortgagee. If the mortgagor will not be protected by the restrictive covenant indemnity insurance policy, the mortgagor must be advised accordingly.
- your firm must reveal to the insurer all relevant information which you have obtained
- the restrictive covenant indemnity insurance policy should not contain terms that you recognise would invalidate or compromise the interests of the bank
- the restrictive covenant indemnity insurance policy should be effected without expense to the mortgage company
- you is duty bound to spell out to the mortgagor that the borrower is obliged to 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 insurance
- your practice must supply a copy of the restrictive covenant indemnity insurance to the borrower and explain to the mortgagor why the restrictive covenant indemnity insurance policy was effected and that additional insurance might be mandatory if there is further borrowing against the mortgaged property
- your practice are responsible for approving the terms of the restrictive covenant policy on behalf of the bank
| Lender | Requirement |
|---|---|
| Ahli United Bank | |
| Atom Bank | |
| Bank of China | |
| Bank of Scotland | |
| Cynergy Bank | |
| Danske Bank | |
| First Direct | |
| Hampden | |
| Hodge | |
| Landmark | |
| Leeds Building Society | |
| M&S Bank | |
| National Westminster Bank | |
| New Street Mortgages | |
| Rooftop Mortgages | |
| Skipton Building Society | |
| St James Place | |
| RBS - Direct Line One | |
| Ulster Bank | |
| Yorkshire Building Society |
Non lender-specific considerations
The full terms, conditions and exclusions for restrictive covenant indemnity insurance are explained in the policy document. Conveyancing solicitors are obliged to direct the borrower to the restrictive covenant indemnity insurance policy paperwork. The intention of restrictive covenant indemnity insurance is to afford indemnity in respect of the risks set out in the policy schedule - so it is essential check any draft to ensure it is as it should be. The continuance of this non-investment insurance contract is in perpetuity unless the policy says something to the contrary. It is well worth checking that the time frame is correct.Significant aspects and benefits of restrictive covenant Contingency insurance :
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 are likely to cover the following- Cover for compensation incurred in any action regarding the risks specified in the restrictive covenant indemnity insurance, as well as legal and associated costs.
- All other 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 free the property from the risks specified in the restrictive covenant insurance.
- The cost of altering or taking down 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 professional fees) for the purpose of the development started, 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.
- Diminution in value resulting from the successful enforcement of the risks specified in the restrictive covenant insurance.
You also need to be sure that the answers on the application form are accurate. However remote the likelihood of a claim on the bank insurance policy might be you can be sure that the insurer will check the details on any proposal form very carefully before any claim is admitted.
Restrictive Covenant Indemnity Insurance has limitations - Supplemental considerations
There may be consequences arising from the enforcement of the risks identified in the restrictive covenant policy which are not adequately covered by financial compensation.For example, extensions creating a granny annex may have to be removed but financial compensation cannot recompense for the loss of separate but adjoining accommodation for an elderly relative in need of care. Whilst this is not necessarily of relevance to the bank it my be of importance to your borrower client.
The content set out above is in relation to properties in England and Wales.