Restrictive Covenant Indemnity Insurance Mortgage Company conveyancing requirements
Virgin Money and Yorkshire Building Society, like most mortgage companies, set their own requirements when it comes to restrictive covenant indemnity insurance. This page is designed to help residential conveyancing practitioners on the numerous lender conveyancing panel where the title for the the property to be mortgaged contains restrictive covenant. Solicitors should still check the Council of Mortgage Lenders’ handbook requirements for each lender, for example Chelsea BS, Leeds Building Society or Yorkshire Bank Home Loans. The information on this page is not focused on restrictive covenant indemnity insurance requirements.
Need help with restrictive covenant indemnity insurance from your lender?
As a conveyancing practitioner on a lender panel you must conduct due diligence as to whether the property has been built, altered or is currently used in contravention of a restrictive covenant. Banks such as Virgin Money, Yorkshire Building Society or Chelsea BS rely on you to check that the covenant is not enforceable. If you are unable to provide an unqualified certificate of title to the bank 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 on risk on the completion date of the mortgage (see UK Finance Lenders’ Handbook section 9).
If there is proof of a breach and, after having conducted reasonable investigations, you are content that the title is good and marketable ; you can provide an unconditional COT to the lender and the breach has continued for more than twenty years unchallenged, then restrictive covenant indemnity insurance will not be insisted upon by the bank.
Santander and Bank of Scotland as with many mortgage companies, obligations require that where restrictive covenant indemnity insurance is to be put on risk:
- your practice is obliged to reveal to the insurer all relevant information which you have gathered
- the restrictive covenant indemnity insurance policy must be effected without charge to the bank
- you must send a copy of the restrictive covenant indemnity insurance to the mortgagor and explain to the mortgagor why the restrictive covenant indemnity insurance policy was effected and that a further policy might be required if there is supplemental lending against the security of the property
- the restrictive covenant indemnity insurance policy should not contain conditions which you know would void or prejudice the interests of the bank
- the level of indemnity must meet the requirements for the mortgage company (See Part II Handbook requirements )
- your practice are responsible for approving the terms of the restrictive covenant policy on behalf of the bank
- the restrictive covenant indemnity insurance policy should always be for the benefit of the bank and, wherever possible, in favour of the borrower and any future owner or mortgagee. If the borrower will not be covered by the restrictive covenant indemnity insurance policy, you must advise the borrower of this fact.
- your practice must explain to the mortgagor that the borrower will need to adhere to any conditions of the restrictive covenant indemnity insurance policy and that the borrower should notify the mortgage company of any notice or potential claim in respect of the insurance
| 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. |
| Ahli United Bank | An amount equal to the value of the Mortgaged Property |
| Allied Irish Bank | At least the amount of the mortgage advance. |
| First Direct | The value of the insurance must be for at least the full value of the property |
| GE Money | GE Money Home Lending has withdrawn from the UK mortgage market. |
| 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. |
| Leeds Building Society | An amount at least equal to the amount of the mortgage advance plus 10%. Any indemnity insurance policy must protect the borrowers, any successor in title and any Mortgagee. |
| Masthaven Bank | 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. |
| Nedbank | You are to refer to us for specific instructions on any matter involving indemnity insurance. |
| Paratus | An amount equal to 110% of the valuation or purchase price - whichever is the greater. |
| Platform | 110% of principal sum. |
| Reliance Bank | \xA31,000,000.00 |
| Scottish Widows | The value of the property. |
| Tandem Bank | An amount at least equal to 110% of the purchase price or valuation – whichever is the greater. |
| Royal Bank of Scotland | An amount equal to the value of the property. |
| RBS (One Account) | An amount equal to the value of the property. |
| Virgin | We require the full market value of the Property. Where this isn't available, we'll accept the loan amount as a minimum. |
| Yorkshire Bank | Open market value of property. |
| Zephyr Mortgages | Valuation or purchase price, whichever is higher. The policy must always benefit the borrower and any subsequent owner or mortgagee - the policy must be index linked. |
Non lender-specific considerations
The extent of the terms for restrictive covenant indemnity insurance are set out in the policy paperwork. Conveyancing Practitioners should point the borrower to the restrictive covenant indemnity insurance policy paperwork. Restrictive Covenant 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 determine that it is in order. The continuance 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.Important characteristics and benefits of restrictive covenant indemnity insurance :
Protection via such a policy is to cover the risk of third parties looking to enforce rights that can affect the use of a property. Restrictive Covenant indemnity insurance Cover normally includes- Cover for compensation incurred in any proceedings in respect of the risks specified in the restrictive covenant indemnity insurance, including fees of a legal nature.
- Money paid with the written consent of the insurance company to free the land from the risks specified in the restrictive covenant insurance.
- The cost 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.
- 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 decision.
- All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurer
- Loss in market value resulting from the successful enforcement of the risks specified in the restrictive covenant indemnity insurance.
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 restrictive covenant policy will be invalidated.
Other considerations for restrictive covenant indemnity insurance
Bear in mind, that if a covenant is breached and changes have to be made, simply getting monetary compensation from restrictive covenant insurance may be adequate for your client.For instance if your client has to significantly change their dream home, they may feel that they would have been better of not buying in the first place.
The above information covers to properties in England and Wales.