Indemnity Insurance of Restrictive Covenant Bank conveyancing requirements

Coventry BS and Bank of Scotland, like the majority of lenders, have their own requirements when it comes to restrictive covenant indemnity insurance. The purpose of this page to assist conveyancing firms on the numerous lender approved list of panel lawyers where the title to be charged incorporates restrictive covenant. Solicitors should still check the Council of Mortgage Lenders’ handbook requirements for each mortgage company, whether it be Lloyds TSB, Birmingham Midshires or Leeds Building Society. The content on this page Is not to be read as restrictive covenant indemnity insurance advice.

Need help with restrictive covenant indemnity insurance from your lender?

Find a Solicitor Find a Mortgage Broker Find More Help

In your capacity as a property lawyer on a mortgage company panel you must investigate whether the property has been built, altered or is currently used in breach of a restrictive covenant. Banks such as Coventry BS, Bank of Scotland or Lloyds TSB rely on you to check that the covenant is not enforceable. Should you be unable to issue an unqualified COT to the mortgage company as a result of the risk of enforceability you must ensure (subject to the UK Finance Lenders’ Handbook paragraph 5.11.2) that indemnity insurance is in place on the completion date of the mortgage (see section 9 of the Council of Mortgage Lenders’ Handbook).

If there is proof that the restrictive covenant has been breached and, only after reasonable enquiries, you are satisfied that there is a good and marketable title ; you can provide an unconditional certificate of title to the lender and the breach has continued for over twenty years without challenge, then restrictive covenant indemnity insurance will not be mandated by the bank.

Yorkshire Bank Home Loans and HSBC as with many banks, requirements are that where restrictive covenant indemnity insurance is effected:

your practice must send a copy of the restrictive covenant indemnity insurance to the borrower and explain to the mortgagor why the restrictive covenant indemnity insurance policy was effected and that additional insurance may be necessary if there is further borrowing against the mortgaged property
you must explain to the borrower that the borrower must comply with any conditions of the restrictive covenant indemnity insurance policy and that the mortgagor should notify the mortgage company of any notice or potential claim in relation to the insurance
you must approve the terms of the restrictive covenant policy on behalf of the mortgage company
the restrictive covenant indemnity insurance policy must not incorporate conditions which you know would void or compromise the interests of the bank
your practice must reveal to the insurer all relevant information which you have acquired
the restrictive covenant indemnity insurance policy must be placed on risk at no charge to the mortgage company
the restrictive covenant indemnity insurance policy should always be for the benefit of the lender and, wherever possible, for the benefit of the mortgagor and any next registered proprietor or mortgagee. If the mortgagor will not be protected by the restrictive covenant indemnity insurance policy, the mortgagor must be advised accordingly.
the level of indemnity must satisfy the requirements for the mortgage company (see UK Finance Lenders’ Handbook Part 2 )

As to the level of cover for the restrictive covenant 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:

Lender	Requirement
Accord Mortgages	An amount at least equal to the amount of the mortgage advance. Any indemnity insurance policy must protect the borrowers, any successors in title and any mortgagee.
Aldermore Bank	110% of the purchase price or valuation, whichever is greater. Any indemnity insurance policy must be for our benefit, that of any transferee/assignee (legal or equitable) of the mortgage and also the borrower(s).
Allied Irish Bank	At least the amount of the mortgage advance.
Aviva Equity Release	Full value of the property.
Bank of Scotland Private	[This lender has not published an answer to this question. Please contact the lender.]
Bradford & Bingley	Amount of loan + 15%
Cynergy Bank	The market value of the property.
Family Building Society	An amount at least equal to the mortgage advance.
Hodge	An amount equal to the purchase price or value, whichever is higher. Any indemnity insurance policy must be for our benefit, that of any transferee/assignee (legal or equitable) of the mortgage, the borrower(s) and any successor in Title.
LiveMore	An amount equal to the purchase price or value of the property, whichever is higher
National Westminster Bank	An amount equal to the value of the property.
Paragon Residential	An amount at least equal to the stated value of the Property.
Rooftop Mortgages	The value of the property for mortgage purposes as disclosed in the valuation.
TSB	The value of the property
The Mortgage Lender	An amount at least equal to the mortgage advance.
RBS - Direct Line One	An amount equal to the value of the property.
RBS- First Active	An amount equal to the value of the property.
RBS (One Account)	An amount equal to the value of the property.
Ulster Bank	An amount equal to the value of the property.
Yorkshire Building Society	An amount at least equal to the amount of the mortgage advance. Any indemnity insurance policy must protect the borrowers, any successors in title and any mortgagee.

General Restrictive Covenant indemnity insurance points to consider

The full terms, conditions and exclusions for restrictive covenant indemnity insurance are explained in the policy paperwork. Conveyancing Practitioners are obliged to direct your non-lender client to the restrictive covenant indemnity insurance policy document. The intention of restrictive covenant indemnity insurance is to afford indemnity in respect of the risks set out in the policy schedule - so you should check the schedule to determine that it is as it should be. The lifetime of this non-investment insurance agreement is in perpetuity unless the policy says something to the contrary. Again, please check that this is as you expected.

Significant features and benefits of restrictive covenant indemnity 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. Restrictive Covenant indemnity insurance Policies are likely to cover the following

The out of pocket expenses 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.
Diminution in value due to the successful enforcement of the risks specified in the restrictive covenant policy.
All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurer
Expenses for 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 restrictive covenant policy, to the extent that such costs are rendered abortive by court order.
Money paid with the written consent of the insurance company to free the land from the risks specified in the restrictive covenant policy.
Cover for compensation incurred in any proceedings in respect of the risks specified in the restrictive covenant policy, including legal and associated costs.

Due diligence should extend to checking that the answers on the application form are correct. However remote the likelihood of a claim on the bank insurance policy might be you can certain that the insurer will check the details on any proposal form thoroughly prior to any claim being admitted.

Supplemental considerations for restrictive covenant indemnity insurance

Restrictive Covenant Indemnity insurance isn’t a solution to all of the relevant problems.

For example, extensions creating a granny annex may have to be removed but indemnity insurance cannot recompense for the loss of separate but adjoining accommodation for an elderly relative who needs occasional care. Whilst this is not necessarily of relevance to the bank it my be of importance to your non-lender client.

Information provided on this webpage is for general information for conveyancers and solicitors in England and Wales on the the lender solicitor panel, it does not constitute advice for members of the public who should contact their lawyer for advice relating to the mortgage company indemnity insurance. Whilst we endeavour to keep the information up to date and correct we do not make any representation or warranties of any kind about its completeness, accuracy, reliability or suitability. Any reliance you place on the information is strictly at your own risk. Lexsure will not be liable for any direct or indirect loss or damage arising out of or in connection with the use of this information. Do not attempt to contact the person who you think may have the benefit of the restrictive covenant as insurers will almost always invariably refuse to insure if there has been any attempt in this respect. Once you have approached the other party insurance may well become impossible and this would in all likelihood close down indemnity insurance as an option of addressing the restrictive covenant problem.

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