Indemnity Insurance of Outstanding Rights of Common Lender conveyancing instructions

Birmingham Midshires and Bank of Scotland, in common with most mortgage companies, set their own specific instructions when it comes to outstanding rights of common indemnity insurance. The purpose of this page to assist residential conveyancing practitioners on the different lender solicitors panel where the title to be charged includes outstanding rights of common. Lawyers are advised to familiarise themselves with the Council of Mortgage Lenders’ handbook requirements for each bank, for example Skipton, Godiva Mortgages or Coventry BS. 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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RBS and Halifax in common with most lenders, instructions are such that where outstanding rights of common indemnity insurance is effected:

• your firm must approve the terms of the outstanding rights of common policy on behalf of the mortgage company
• the outstanding rights of common indemnity insurance policy should be placed on risk at no expense to the mortgage company
• your practice must supply a copy 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 may be mandatory if there is supplemental lending against the mortgaged property
• the outstanding rights of common indemnity insurance policy needs to be in favor of the bank and, wherever possible, in favour of the borrower and any subsequent registered proprietor or lender. If the borrower will not be covered by the outstanding rights of common indemnity insurance policy, the mortgagor must be advised accordingly.
• you must point out to the mortgagor that the borrower must adhere to any conditions of the outstanding rights of common indemnity insurance policy and that the borrower should notify the lender of any notice or potential claim in respect of the insurance
• you is required to disclose to the insurer all relevant information which you have gathered
• the outstanding rights of common indemnity insurance policy should not contain conditions that you know would void or prejudice the interests of the bank
• the minimum level of cover for the policy must satisfy the requirements for the lender (see UK Finance Lenders’ Handbook Part 2 )

As to the level of cover for the outstanding rights of common 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:

General Outstanding Rights of Common indemnity insurance points to consider

The full terms, conditions and exclusions for outstanding rights of common indemnity insurance are set out in the policy paperwork. Conveyancing solicitors should direct your non-lender client to the outstanding rights of common indemnity insurance policy document. The intention of outstanding rights of common indemnity insurance is to grant indemnity in respect of the risks specified in the policy schedule - so it’s important to check the schedule 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 Contingency insurance: Important features 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 Cover normally includes

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

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Due diligence should extend to checking that the answers on the application form are accurate. Regardless of how remote 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 prior to any claim being met.

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Outstanding Rights of Common Indemnity Insurance has limitations - Supplemental considerations

Bear in mind, that if a covenant is breached and changes have to be made, simply getting monetary compensation from outstanding rights of common 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.