Bank conveyancing panel requirements re Contingent Buildings Indemnity Insurance

Godiva Mortgages and Skipton, in common with many lenders, dictate their own specific instructions when it comes to contingent buildings indemnity insurance. This page sets out to enlighten property law lawyers on the different lender solicitors panel where the title for the the property to be mortgaged includes contingent buildings. Solicitors should still check the Council of Mortgage Lenders’ handbook requirements for each lender, be it Halifax, Birmingham Midshires or Leeds Building Society. The content on this page Is not to be read as contingent buildings indemnity insurance advice.

Need help with contingent buildings indemnity insurance from your lender?

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Bank of Scotland and Natwest as with the majority of banks, requirements are that where contingent buildings indemnity insurance is to be put on risk:

• you is duty bound to spell out to the borrower that the borrower is obliged to adhere to any conditions of the contingent buildings indemnity insurance policy and that the borrower should notify the lender of any notice or potential claim in relation to the policy
• the contingent buildings indemnity insurance policy should always be for the benefit of the bank and, wherever possible, for the benefit of the borrower and any subsequent owner or lender. Where the borrower will not be covered by the contingent buildings indemnity insurance policy, the borrower should be informed accordingly.
• you must approve the terms of the contingent buildings policy on behalf of the bank
• the minimum level of cover for the policy must satisfy the requirements for the lender (See Part II Handbook requirements )
• your practice is obliged to disclose to the insurer all relevant information which you have gathered
• your practice must provide a copy of the contingent buildings indemnity insurance to the borrower and explain to the borrower why the contingent buildings indemnity insurance policy was effected and that additional insurance might be required if there is supplemental borrowing against the mortgaged property
• the contingent buildings indemnity insurance policy must not incorporate terms that you recognise would invalidate or prejudice the interests of the bank
• the contingent buildings indemnity insurance policy must be placed on risk at no expense to the lender

As to the level of cover for the contingent buildings 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:

General Contingent Buildings indemnity insurance points to consider

The full terms, conditions and exclusions for contingent buildings indemnity insurance are shown in the policy paperwork. Property lawyers are obliged to point your non-lender client to the contingent buildings indemnity insurance policy itself. The intention of contingent buildings indemnity insurance is to grant indemnity in respect of the risks set out in the policy schedule - so it is essential check any draft to ensure it is in order. The lifetime of this non-investment insurance agreement is in perpetuity unless the policy says something to the contrary. Adequacy in this regard should be checked.

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Contingent Buildings indemnity insurance: Important aspects and benefits:

Protection via such a policy is to cover the risk of third parties looking to enforce rights that can affect the use of a property. Contingent Buildings indemnity insurance Policies are likely to cover the following

• The cost of works (including architects’ and surveyors’ fees) for the purpose of the development started, prior to proceedings for the enforcement of the risks specified in the contingent buildings indemnity insurance, to the extent that such costs are rendered abortive by court order.
• Market value reduction resulting from the successful enforcement of the risks specified in the contingent buildings insurance.
• Cover for compensation incurred in any action concerning the risks specified in the contingent buildings indemnity insurance, as well as incurred costs and expenses.
• Money paid with the written consent of the insurance company to liberate the property from the risks specified in the contingent buildings policy.
• All other costs and expenses incurred by the Insured with the written consent of the relevant insurance company
• The cost 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.

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Always consider what is excluded from the contingent buildings policy e.g. does the policy cover any property that has been altered within the year prior to the policy being put on risk? Does it cover legal costs?

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Additional considerations for contingent buildings indemnity insurance

Contingent Buildings insurance may satisfy lenders such as HSBC or Lloyds TSB 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.

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The above information covers to properties in England and Wales.