Indemnity Insurance of Restrictive Covenant Lender conveyancing instructions

Birmingham Midshires and Barnsley BS, in common with the majority of banks, dictate their own requirements when it comes to restrictive covenant indemnity insurance. The purpose of this page to assist residential conveyancing solicitors on the various bank approved list of panel lawyers where the title to be charged includes restrictive covenant. Solicitors should still check the CML handbook requirements for each bank, for example Coventry BS, Nationwide or Natwest. The information on this page Is not to be read as restrictive covenant indemnity insurance advice.

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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. Lenders such as Birmingham Midshires, Barnsley BS or Coventry BS rely on you to investigate whether the covenant is not enforceable. If you are unable to provide 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 on risk on completion of the mortgage (see section 9 of the Council of Mortgage Lenders’ Handbook).

Should your investigations reveal proof that the restrictive covenant has been breached and, only after reasonable enquiries, you are content that there is a good and marketable title ; you are able to issue an unqualified COT to the lender and the breach has continued in excess twenty years without challenge, then restrictive covenant indemnity insurance will not be insisted upon by the lender.

Lloyds TSB and Yorkshire Bank Home Loans as with most lenders, requirements are that where restrictive covenant indemnity insurance is effected:

you must approve the terms of the restrictive covenant policy on behalf of the mortgage company
the restrictive covenant indemnity insurance policy must not contain conditions which you recognise would void or compromise the interests of the bank
your practice is duty bound to explain to the borrower that the borrower must adhere to 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 policy
the limit of indemnity must meet the requirements for the mortgage company (see UK Finance Lenders’ Handbook Part 2 )
the restrictive covenant indemnity insurance policy needs to be for the benefit of the lender and, wherever possible, in favour of the mortgagor and any next registered proprietor or mortgagee. If the mortgagor will not be covered by the restrictive covenant indemnity insurance policy, you must advise the borrower of this fact.
the restrictive covenant indemnity insurance policy must be placed on risk without charge to the bank
your firm must supply a duplicate 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 a further policy might be necessary if there is supplemental borrowing against the security of the property
you is obliged to reveal to the insurer all relevant information which you have obtained

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 CML handbook PII requirements for banks:

Lender	Requirement
Atom Bank	At least the open market value of the property according to the valuation report.
Bank of Ireland	The limit of indemnity must be an amount not less than the market value of the property.
Bank of Scotland	Not less than mortgage advance plus 10%
Better HomeOwnership	An amount to cover the mortgage advance as a minimum.
Habito	Higher of purchase price or valuation
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.
Keystone Property Finance	An amount equal to 110% of the valuation or purchase price - whichever is the greater
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.
LendInvest	An amount at least equal to the valuation of the property.
LiveMore	An amount equal to the purchase price or value of the property, whichever is higher
M&S Bank	the value of the insurance must be for at least the full value of the property
Molo Finance Buy to Let	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 mortgages.
Nationwide Building Society	Purchase Price (valuation if price is at a discount). Contact Issuing Office for advice on a remortgage
Paratus	An amount equal to 110% of the valuation or purchase price - whichever is the greater.
Platform	110% of principal sum.
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.
Rely Mortgages	An amount at least equal to 110% of the mortgage valuation.
Secure Trust Bank	An amount at least equal to the market value. 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).
Royal Bank of Scotland -Natwest One	An amount equal to the value of the property.
Ulster Bank	An amount equal to the value of the property.

General Restrictive Covenant indemnity insurance points to consider

The full terms, conditions and exclusions for restrictive covenant indemnity insurance are explained in the policy document. Conveyancing Practitioners should direct the borrower to the restrictive covenant indemnity insurance policy document. The intention of restrictive covenant indemnity insurance is to provide indemnity in respect of the risks specified in the policy schedule - so it’s important to check any draft to determine that it is in order. The continuance of this non-investment insurance contract is in perpetuity unless otherwise stated in the restrictive covenant indemnity insurance policy. It is well worth checking that the time frame is correct.

Important features 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 Policies should be checked for the following

Expenses for works (including professional fees) for the purpose of the development started, 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.
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.
Loss in market value due to the successful enforcement of the risks specified in the restrictive covenant insurance.
All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
Money paid with the written consent of the insurance company to free the land from the risks specified in the restrictive covenant policy.
Reimbursement for compensation incurred in any proceedings concerning the risks specified in the restrictive covenant policy, including solicitors charges.

Don't forget to check what is excluded from the restrictive covenant indemnity insurance e.g. does the policy cover any property that has been altered within the 12 months prior to the commencement of the policy? Does it cover legal costs?

Restrictive Covenant Indemnity Insurance has limitations - Supplemental considerations

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

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.

Information provided on this webpage is for general information for Regulated law firms 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 lender 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.