Lender conveyancing panel requirements re Absentee Landlord Indemnity Insurance

Barclays and Halifax, like the majority of banks, have their own specific instructions when it comes to absentee landlord indemnity insurance. This page is designed to help property law practitioners on the various bank approved list of panel lawyers where the title to be charged includes absentee landlord. Lawyers are advised to familiarise themselves with the Council of Mortgage Lenders’ handbook requirements for each lender, for example Virgin Money, RBS or Leeds Building Society. The information on this page is not focused on absentee landlord indemnity insurance requirements.

Need help with absentee landlord indemnity insurance from your lender?

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As a conveyancing practitioner on a bank panel you must report to the lender (see PII of the UK Finance Lenders’ Handbook) if it becomes apparent that the landlord is either absent or insolvent. If the lender are to lend, they may require missing landlord indemnity insurance. Lenders’ attitudes are changing however and an increased number of mortgage companies have changed their requirements on the minimum lease term before they are prepared to lend. LENDER monitor has noted a changing attitude towards in missing landlord insurance. A number of lendersbanks in the past stated that, they would have lent on an missing landlord, whereas they will no longer do so. See 5.14.15 to see if the mortgage company accept indemnity insurance if the landlord is absent or insolvent. Examples of such requirements as follows:

About Absentee Landlord Indemnity Insurance

Missing Landlord Insurance is typically required when the freeholder or landlord of land or property is insolvent, absent or where Bona Vacantia applies in relation to defunct companies. This impacts the ability to pay ground rent and obtain consent to lease assignments and alterations to the property. The potential risk is that the landlord may request ground rent or seek forfeiture of the lease claiming breach of covenant should they subsequently appear.

Lloyds TSB and Santander in common with the majority of banks, obligations require that where absentee landlord indemnity insurance is to be put on risk:

• the absentee landlord indemnity insurance policy should not incorporate terms which you know would void or prejudice the interests of the bank
• the absentee landlord indemnity insurance policy should always be in favor of the lender and, wherever possible, for the benefit of the mortgagor and any next owner or mortgagee. Where the borrower will not be protected by the absentee landlord indemnity insurance policy, the mortgagor needs to be informed accordingly.
• your practice are responsible for approving the terms of the absentee landlord policy on behalf of the mortgage company
• your firm is duty bound to explain to the borrower that the borrower will need to comply with any conditions of the absentee landlord indemnity insurance policy and that the borrower should notify the lender of any notice or potential claim in relation to the policy
• you must supply a copy of the absentee landlord indemnity insurance to the borrower and explain to the borrower why the absentee landlord indemnity insurance policy was effected and that a further policy may be mandatory if there is further lending against the mortgaged property
• the absentee landlord indemnity insurance policy must be effected without expense to the lender
• your firm is obliged to disclose to the insurer all relevant information which you have obtained
• the level of indemnity must meet the requirements for the bank (see UK Finance Lenders’ Handbook Part 2 )

As to the level of cover for the absentee landlord indemnity insurance policy (or for that matter any indemnity insurance), consider the following sampling of Section 9.2 of the CML handbook PII requirements for banks:

Non lender-specific considerations

The full terms, conditions and exclusions for absentee landlord indemnity insurance are explained in the policy paperwork. Conveyancing Practitioners are obliged to point the borrower to the absentee landlord indemnity insurance policy paperwork. The intention of absentee landlord indemnity insurance is to provide indemnity in respect of the risks set out in the policy schedule - so you should check any draft to determine that it is correct. The continuance of this non-investment insurance contract is in perpetuity unless otherwise stated in the absentee landlord indemnity insurance policy. It is well worth checking that the time frame is correct.

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Significant features and benefits of absentee landlord Contingency insurance :

The policy will normally cover where someone claims to be entitled to the benefit of the specified risks, stated in the absentee landlord indemnity insurance schedule. Absentee Landlord indemnity insurance Policies should be checked for the following

• Loss in market value resulting from the successful enforcement of the risks specified in the absentee landlord indemnity insurance.
• Reimbursement for compensation incurred in any action regarding the risks specified in the absentee landlord insurance, as well as incurred costs and expenses.
• 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 other costs and expenses incurred by the Insured with consent in writing from the relevant insurer
• Money paid with consent in writing from the insurance company to liberate the land from the risks specified in the absentee landlord insurance.
• Expenses for 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 absentee landlord insurance, to the extent that such costs are rendered abortive by court decision.

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Don't forget to check what is not included in the absentee landlord insurance e.g. does the policy cover any residence that has been altered within the year prior to the commencement of the policy? Are legal costs covered?

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Absentee Landlord Indemnity Insurance has limitations - Supplemental considerations

There may be consequences arising from the enforcement of the risks identified in the absentee landlord insurance which are not adequately covered by financial compensation.

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The above information is in relation to properties in England and Wales.