Restrictive Covenant Indemnity Insurance Mortgage Company conveyancing requirements
Godiva Mortgages and Chelsea BS, like the majority of mortgage companies, have their own requirements when it comes to restrictive covenant indemnity insurance. The content herein aims to help property law practitioners on the various mortgage company approved list of panel lawyers where the title for the the property to be mortgaged includes restrictive covenant. It is not a alternative for checking the CML handbook requirements for each lender, be it Lloyds TSB, Barnsley BS or Natwest. 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?
As a conveyancing lawyer on a bank panel you must investigate whether the property has been built, altered or is currently used in contravention of a restrictive covenant. Banks such as Godiva Mortgages, Chelsea BS or Lloyds TSB rely on you to check that the covenant is not enforceable. Should you be unable to provide an unqualified COT to the lender as a result of the risk of enforceability you must ensure (subject to the UK Finance Lenders’ Handbook paragraph 5.11.2) that Contingency insurance is taken out on the completion date of the mortgage (see section 9 of the Council of Mortgage Lenders’ Handbook).
If there is evidence of a breach and, after having conducted reasonable investigations, you are content that there is a good and marketable title ; you are able to issue an unconditional certificate of title to the lender and the breach has continued for more than 20 years without challenge, then restrictive covenant indemnity insurance will not be mandated by the bank.
Nationwide and Skipton in common with most mortgage companies, instructions are such that where restrictive covenant indemnity insurance is to be put on risk:
- you is required to disclose to the insurer all relevant information which you have acquired
- you is duty bound to spell out to the mortgagor 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 respect of the insurance
- the restrictive covenant indemnity insurance policy must not incorporate conditions that you recognise would invalidate or compromise the interests of the lender
- you must supply a copy of the restrictive covenant indemnity insurance to the borrower and explain to the borrower why the restrictive covenant indemnity insurance policy was effected and that additional insurance could be required if there is additional borrowing against the security of the property
- the level of indemnity must satisfy the requirements for the bank (See Part II Handbook requirements )
- the restrictive covenant indemnity insurance policy must be placed on risk at no expense to the bank
- you must approve the terms of the restrictive covenant policy on behalf of the mortgage company
- the restrictive covenant indemnity insurance policy must be for the benefit of the lender and, if possible, in favour of the mortgagor and any future owner or mortgagee. If the mortgagor will not be protected by the restrictive covenant indemnity insurance policy, you must advise the mortgagor of this fact.
| 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. |
| April Mortgages | An amount at least equal to the mortgage advance. |
| Bank of China | Cover to full value of the property or the Mortgage Advance, whichever is the higher. |
| Bank of Ireland | The limit of indemnity must be an amount not less than the market value of the property. |
| Bluestone Mortgages | An amount at least equal to the total mortgage advance. Any indemnity insurance policy must protect the borrowers, any successors in title and any mortgagee. |
| Bradford & Bingley | Amount of loan + 15% |
| Family Building Society | An amount at least equal to the mortgage advance. |
| Godiva Mortgages | Minimum of the value of the property. |
| Habito | Higher of purchase price or valuation |
| Halifax | The value of the property. |
| Lloyds Bank Private Banking | Not less than the Facility plus 10%. |
| New Street Mortgages | Must be for a minimum of 110% of the purchase price or valuation whichever is the greatest. |
| Paratus | An amount equal to 110% of the valuation or purchase price - whichever is the greater. |
| Pepper Money | An amount equal to at least 110% of 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 and also the borrower(s). |
| Platform | 110% of principal sum. |
| Precise Mortgages 2026 | An amount at least equal to 110% of the mortgage valuation. |
| Principality Building Society | Full market value of the property is preferred but if this is not available we will accept the loan advance amount as minimum. You must approve the policy on our behalf. The estimated property value is stated in the Mortgage Offer in remortgage cases. Otherwise it will be stipulated in the Valuation. |
| RBS (One Account) | An amount equal to the value of the property. |
General Restrictive Covenant indemnity insurance points to consider
The extent of the terms for restrictive covenant indemnity insurance are identified in the policy paperwork. Conveyancing Practitioners are obliged to direct your non-lender client to the restrictive covenant indemnity insurance policy document. Restrictive Covenant Contingency insurance is designed to afford indemnity in respect of the risks specified in the policy schedule - so it’s important to check the schedule to ensure it is in order. The duration 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.Important aspects 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 should be checked for the following- Money paid with the written consent of the insurance company to liberate the property from the risks specified in the restrictive covenant policy.
- Loss in market value due to the successful enforcement of the risks specified in the restrictive covenant insurance.
- Cover for compensation incurred in any action concerning the risks specified in the restrictive covenant insurance, as well as incurred costs and expenses.
- 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 insurance company
- The cost of works (including professional fees) for the purpose of the development commenced, before the commencement of 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.
You also need to be sure that the answers on the application form are accurate. Regardless of how remote a claim on the bank insurance policy might be you can be sure that the insurer will check the details on any proposal form very carefully prior to any claim being admitted.
Restrictive Covenant Indemnity Insurance has limitations - Further considerations
Restrictive Covenant 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 restrictive covenant indemnity cover will not necessarily be the answer.For example, extensions creating an additional structure such as a granny annex may have to be removed but financial compensation does not compensate for the loss of separate but adjoining accommodation for an elderly relative who needs occasional care. the lender may not care about such consequences but your other client so consideration needs to be given to explain these potential implications.
The above information covers to properties in England and Wales.