Lender conveyancing panel conditions re Restrictive Covenant Indemnity Insurance
Skipton and Halifax, in common with the majority of lenders, have their own requirements when it comes to restrictive covenant indemnity insurance. The purpose of this page to assist conveyancing solicitors on the various lender approved list of panel lawyers where the title to be charged contains restrictive covenant. Lawyers are advised to familiarise themselves with the Council of Mortgage Lenders’ handbook requirements for each bank, for example Leeds Building Society, Yorkshire Building Society or Lloyds TSB. The content on this page is not focused on restrictive covenant indemnity insurance requirements.
Need help with restrictive covenant indemnity insurance from your lender?
Being a conveyancing practitioner on a bank panel you must enquire whether the property has been built, altered or is currently used in breach of a restrictive covenant. Lenders such as Skipton, Halifax or Leeds Building Society rely on you to check that the covenant is not enforceable. If you are unable to issue an unqualified COT 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 indemnity insurance is on risk on completion of the mortgage (see UK Finance Lenders’ Handbook section 9).
Should your investigations reveal proof that the restrictive covenant has been breached and, following reasonable enquiries, you are assured that there is a good and marketable title ; you can provide an unqualified certificate of title to the lender and the breach has continued for more than twenty years unchallenged, then restrictive covenant indemnity insurance will not be insisted upon by the bank.
Yorkshire Bank Home Loans and Coventry BS in common with most mortgage companies, instructions are such that where restrictive covenant indemnity insurance is to be put on risk:
- your firm is required to reveal to the insurer all relevant information which you have gathered
- your practice must send a copy 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 additional insurance might be mandatory if there is additional lending against the mortgaged property
- the restrictive covenant indemnity insurance policy must be placed on risk at no cost to the mortgage company
- the restrictive covenant indemnity insurance policy must not incorporate terms which you know would invalidate or compromise the interests of the mortgage company
- the restrictive covenant indemnity insurance policy should always be for the benefit of the lender and, if possible, in favour of the mortgagor and any next owner or mortgagee. Where the borrower will not be covered by the restrictive covenant indemnity insurance policy, you must advise the borrower of this fact.
- your firm is duty bound to explain 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 policy
- your firm must approve the terms of the restrictive covenant policy on behalf of the bank
- the limit of indemnity must meet the requirements for the bank (see UK Finance Lenders’ Handbook Part 2 )
| Lender | Requirement |
|---|---|
| Accord Mortgages | 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. |
| Allied Irish Bank | At least the amount of the mortgage advance. |
| 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. |
| First Direct | The value of the insurance must be for at least the full value of the property |
| Fleet Mortgages | An amount at least equal to the valuation of the property. |
| HSBC UK Bank | The value of the insurance must be for at least the full value of the property |
| 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. |
| LiveMore | An amount equal to the purchase price or value of the property, whichever is higher |
| MPowered Mortgages | Either the minimum reinstatement value or where there is no valuation the market value/purchase price figure (whichever is higher). |
| NRAM Ltd | 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. |
| National Counties Building Society | An amount at least equal to the mortgage advance. |
| Paragon Residential | An amount at least equal to the stated value of the Property. |
| 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. |
| Reliance Bank | \xA31,000,000.00 |
| Scottish Widows | The value of the property. |
| 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. |
| RBS - Direct Line One | An amount equal to the value of the property. |
| RBS (One Account) | 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. Conveyancing Practitioners are obliged to direct your non-lender client to the restrictive covenant indemnity insurance policy paperwork. Restrictive Covenant indemnity insurance is designed to grant indemnity in respect of the risks specified in the policy schedule - so you should check the schedule to determine that it is in order. The lifetime of this non-investment insurance contract is in perpetuity unless otherwise stated in the restrictive covenant indemnity insurance policy. Again, please check that this is as you expected.Important characteristics 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- 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.
- All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurance company
- Loss in market value resulting from the successful enforcement of the risks specified in the restrictive covenant policy.
- All sums paid with the written consent of the insurance company to free the land from the risks specified in the restrictive covenant insurance.
- Liability for damages or compensation incurred in any proceedings in respect of the risks specified in the restrictive covenant policy, including legal and associated costs.
- The cost of works (including professional 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.
As with any insurance policy, 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 be invalidated.
Additional considerations for restrictive covenant indemnity insurance
Restrictive Covenant insurance may satisfy lenders such as Godiva Mortgages or Bank of Scotland 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 an additional structure such as a granny annex may have to be destroyed 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 lender it my be of importance to your borrower client.
The above information covers to properties in England and Wales.