Indemnity Insurance of Contingent Buildings Bank conveyancing requirements

HSBC and Accord, as with the majority of mortgage companies, have their own specific instructions when it comes to contingent buildings indemnity insurance. This page sets out to enlighten conveyancing practitioners on the various bank conveyancing panel where the title for the the property to be mortgaged incorporates contingent buildings. Lawyers are advised to familiarise themselves with the Council of Mortgage Lenders’ handbook requirements for each lender, be it Chelsea BS, Leeds Building Society or Natwest. 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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Nationwide and RBS as with many banks, obligations require that where contingent buildings indemnity insurance is to be put on risk:

• you must supply a copy of the contingent buildings indemnity insurance to the mortgagor and explain to the borrower why the contingent buildings indemnity insurance policy was effected and that a further policy might be necessary if there is supplemental borrowing against the mortgaged property
• your practice are responsible for approving the terms of the contingent buildings policy on behalf of the lender
• the contingent buildings indemnity insurance policy must not contain conditions which you know would void or compromise the interests of the lender
• your firm is obliged to reveal to the insurer all relevant information which you have obtained
• the contingent buildings indemnity insurance policy should always be in favor of the lender and, if possible, in favour of the borrower and any subsequent registered proprietor or bank. Where the borrower will not be covered by the contingent buildings indemnity insurance policy, you must advise the mortgagor of this fact.
• you must explain to the mortgagor that the borrower must adhere to any conditions of the contingent buildings indemnity insurance policy and that the borrower should notify the bank of any notice or potential claim in relation to the insurance
• the contingent buildings indemnity insurance policy should be effected at no expense to the bank
• the minimum level of cover for the policy must satisfy the requirements for the mortgage company (see UK Finance Lenders’ Handbook Part 2 )

Regarding the extent 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 Part 2 requirements for banks:

Non lender-specific considerations

The full terms, conditions and exclusions for contingent buildings indemnity insurance are explained in the policy paperwork. Conveyancing Practitioners should point your non-lender client to the contingent buildings indemnity insurance policy paperwork. 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 the schedule to determine that it is as it should be. The lifetime of this non-investment insurance contract is in perpetuity unless otherwise stated in the contingent buildings indemnity insurance policy. It is well worth checking that the time frame is correct.

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Important aspects and benefits of contingent buildings 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. Contingent Buildings indemnity insurance Policies are likely to cover the following

• Reimbursement for compensation incurred in any proceedings concerning the risks specified in the contingent buildings insurance, including fees of a legal nature.
• All sums paid with the written consent of the insurance company to liberate the land from the risks specified in the contingent buildings policy.
• The cost of works (including professional fees) for the purpose of the development commenced, prior to proceedings for the enforcement of the risks specified in the contingent buildings insurance, to the extent that such costs are rendered abortive by court order.
• Market value reduction due to the successful enforcement of the risks specified in the contingent buildings indemnity insurance.
• The cost of altering or demolishing 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 consent in writing from the relevant insurer

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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 contingent buildings policy will be invalidated.

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Contingent Buildings Indemnity Insurance has limitations - Supplemental considerations

Contingent Buildings Indemnity policies can provide effective protection, but non-lender clients should be asked to give pause for thought and consider that the consequences of not being able to enjoy the property as anticipated may mean that contingent buildings indemnity cover will not necessarily be the right solution.

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