Outstanding Rights of Common Indemnity Insurance Lender conveyancing requirements

Birmingham Midshires and Yorkshire Bank Home Loans, in common with most mortgage companies, have their own requirements when it comes to outstanding rights of common indemnity insurance. This page sets out to enlighten property law practitioners on the various bank solicitors panel where the title for the the property to be mortgaged includes outstanding rights of common. Lawyers are advised to familiarise themselves with the Council of Mortgage Lenders’ handbook requirements for each lender, for example HSBC, Chelsea BS or RBS. The information on this page is not focused on outstanding rights of common indemnity insurance requirements.

Need help with outstanding rights of common indemnity insurance from your lender?

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Lloyds TSB and Bank of Scotland in common with most lenders, obligations require that where outstanding rights of common indemnity insurance is to be put on risk:

• you must approve the terms of the outstanding rights of common policy on behalf of the lender
• your practice must provide a duplicate of the outstanding rights of common indemnity insurance to the borrower and explain to the borrower why the outstanding rights of common indemnity insurance policy was effected and that additional insurance could be required if there is further borrowing against the security of the property
• your firm must spell out to the borrower that the borrower will need to adhere to any conditions of the outstanding rights of common indemnity insurance policy and that the mortgagor should notify the bank of any notice or potential claim in respect of the policy
• the outstanding rights of common indemnity insurance policy should not contain conditions that you recognise would invalidate or compromise the interests of the bank
• the outstanding rights of common indemnity insurance policy must be for the benefit of the lender and, wherever possible, in favour of the borrower and any future owner or mortgagee. If the borrower will not be protected by the outstanding rights of common indemnity insurance policy, you must advise the mortgagor of this fact.
• the outstanding rights of common indemnity insurance policy should be placed on risk without expense to the bank
• the level of indemnity must satisfy the requirements for the lender (see UK Finance Lenders’ Handbook Part 2 )
• your practice is obliged to disclose to the insurer all relevant information which you have gathered

Regarding the extent of cover for the outstanding rights of common indemnity insurance policy (or for that matter any indemnity insurance), consider the following sampling of Paragraph 9.2 of the Part 2 requirements for mortgage companies:

Outstanding Rights of Common Contingency Insurance : Reflections

The full terms, conditions and exclusions for outstanding rights of common indemnity insurance are shown in the policy document. Conveyancing solicitors are obliged to direct your non-lender client to the outstanding rights of common indemnity insurance policy document. Outstanding Rights of Common indemnity insurance is devised to grant indemnity in respect of the risks specified in the policy schedule - so it’s important to check any draft to ensure it is correct. The continuance of this non-investment insurance contract is in perpetuity unless the policy says something to the contrary. It is well worth checking that the time frame is correct.

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Outstanding Rights of Common indemnity insurance: Important characteristics and benefits:

The policy will normally cover where someone claims to be entitled to the benefit of the specified risks, stated in the outstanding rights of common indemnity insurance schedule. Outstanding Rights of Common indemnity insurance Policies are likely to cover the following

• The out of pocket expenses 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.
• Money paid with the written consent of the insurance company to liberate the land from the risks specified in the outstanding rights of common indemnity insurance.
• The cost of works (including architects’ and surveyors’ fees) for the purpose of the development begun, or contracted for, prior to proceedings for the enforcement of the risks specified in the outstanding rights of common policy, to the extent that such costs are rendered abortive by court decision.
• All other costs and expenses incurred by the Insured with consent in writing from the relevant insurer
• Liability for damages or compensation incurred in any action in respect of the risks specified in the outstanding rights of common insurance, including fees of a legal nature.
• Market value reduction due to the successful enforcement of the risks specified in the outstanding rights of common policy.

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As is the case with all conventional insurance, all material information needs to be disclosed to the insurance company at the outset and throughout the policy term, otherwise the outstanding rights of common policy will be invalidated.

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Supplemental considerations for outstanding rights of common indemnity insurance

Outstanding Rights of Common 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 outstanding rights of common indemnity cover will not necessarily be the answer.

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The above information covers to properties in England and Wales.