Indemnity Insurance of Contingent Buildings Mortgage Company conveyancing obligations

Barclays and Coventry BS, in common with the majority of banks, dictate their own requirements when it comes to contingent buildings indemnity insurance. This page is designed to help residential conveyancing lawyers on the different lender approved list of panel lawyers where the title for the the property to be mortgaged includes contingent buildings. It is not a alternative for checking the Council of Mortgage Lenders’ handbook requirements for each bank, whether it be Natwest, Virgin Money or Accord. The information on this page is not focused on contingent buildings indemnity insurance requirements.

Need help with contingent buildings indemnity insurance from your lender?

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Yorkshire Building Society and RBS as with most mortgage companies, requirements are that where contingent buildings indemnity insurance is to be taken out:

• the contingent buildings indemnity insurance policy needs to be in favor of the bank and, if possible, for the benefit of the mortgagor and any future registered proprietor or lender. Where the borrower will not be covered by the contingent buildings indemnity insurance policy, you must advise the mortgagor of this fact.
• you must point out to the mortgagor that the borrower is obliged to comply with any conditions of the contingent buildings indemnity insurance policy and that the borrower should notify the mortgage company of any notice or potential claim in respect of the policy
• you must disclose to the insurer all relevant information which you have obtained
• the limit of indemnity must satisfy the requirements for the lender (see UK Finance Lenders’ Handbook Part 2 )
• the contingent buildings indemnity insurance policy must be placed on risk at no charge to the bank
• the contingent buildings indemnity insurance policy should not contain conditions which you recognise would void or prejudice the interests of the lender
• your practice must supply a copy of the contingent buildings indemnity insurance to the mortgagor and explain to the mortgagor why the contingent buildings indemnity insurance policy was effected and that additional insurance could be necessary if there is supplemental lending against the mortgaged property
• your firm are responsible for approving the terms of the contingent buildings policy on behalf of 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 lenders:

Contingent Buildings Contingency Insurance : Reflections

The full terms, conditions and exclusions for contingent buildings indemnity insurance are explained in the policy document. Property lawyers should point your non-lender client to the contingent buildings indemnity insurance policy document. Contingent Buildings indemnity insurance is designed to afford indemnity in respect of the risks specified in the policy schedule - so it is essential check any draft to ensure it is as it should be. The duration of this non-investment insurance contract is in perpetuity unless the policy says something to the contrary. Adequacy in this regard should be checked.

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Significant features and benefits of contingent buildings Contingency insurance :

The insurance will normally cover where someone claims to be entitled to the benefit of the specified risks, stated in the contingent buildings indemnity insurance schedule. Contingent Buildings indemnity insurance Policies are likely to cover the following

• Loss in market value resulting from the successful enforcement of the risks specified in the contingent buildings policy.
• Cover for compensation incurred in any proceedings concerning the risks specified in the contingent buildings indemnity insurance, as well as legal and associated costs.
• The out of pocket expenses 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.
• 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 policy, to the extent that such costs are rendered abortive by court decision.
• All sums paid with consent in writing from the insurance company to liberate the land from the risks specified in the contingent buildings indemnity insurance.
• All other costs and expenses incurred by the Insured with consent in writing from the relevant insurer

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Due diligence should extend to checking that the answers on the application form are correct. However remote the likelihood of a claim on the mortgage company insurance policy might be you can certain that the insurer will check the details on any proposal form very carefully before any claim is paid out.

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Additional considerations for contingent buildings indemnity insurance

Bear in mind, that if a covenant is breached and changes have to be made, simply getting monetary compensation from contingent buildings insurance may be adequate for your client.

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The content set out above is in relation to properties in England and Wales.