Restrictive Covenant Indemnity Insurance Lender conveyancing requirements
Yorkshire Building Society and Barnsley BS, in common with most mortgage companies, have their own requirements when it comes to restrictive covenant indemnity insurance. The purpose of this page to assist property law firms on the various lender solicitors panel where the title to be charged incorporates restrictive covenant. Solicitors should still check the CML handbook requirements for each lender, be it Barclays, Virgin Money or Skipton. The information 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 Yorkshire Building Society, Barnsley BS or Barclays 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 Contingency insurance is on risk on the completion date of the mortgage (see section 9 of the Council of Mortgage Lenders’ Handbook).
If there is evidence that the restrictive covenant has been breached and, after having conducted reasonable enquiries, you are satisfied that the title is good and marketable ; you are able to issue an unconditional COT to the bank and the breach has continued in excess 20 years unchallenged, then restrictive covenant indemnity insurance will not be insisted upon by the mortgage company.
HSBC and Leeds Building Society as with many lenders, obligations require that where restrictive covenant indemnity insurance is to be put on risk:
- the level of indemnity must satisfy the requirements for the mortgage company (See Part II Handbook requirements )
- the restrictive covenant indemnity insurance policy must be for the benefit of the bank and, wherever possible, in favour of the mortgagor and any next owner or mortgagee. If the borrower will not be covered by the restrictive covenant indemnity insurance policy, the mortgagor should be informed accordingly.
- the restrictive covenant indemnity insurance policy must not incorporate terms that you recognise would invalidate or prejudice the interests of the mortgage company
- you must explain to the mortgagor that the borrower is obliged to adhere to any conditions of the restrictive covenant indemnity insurance policy and that the borrower should notify the lender of any notice or potential claim in respect of the insurance
- you must reveal to the insurer all relevant information which you have obtained
- your firm are responsible for approving the terms of the restrictive covenant policy on behalf of the mortgage company
- the restrictive covenant indemnity insurance policy must be effected without cost to the lender
- you must provide 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 a further policy could be mandatory if there is further borrowing against the security of the property
| Lender | Requirement |
|---|---|
| Accord 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 mortgagee. |
| Allied Irish Bank | At least the amount of the mortgage advance. |
| 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% |
| Barclays plc | Higher of purchase price or valuation |
| Fleet Mortgages | An amount at least equal to the valuation of the property. |
| Gen H | An amount equal to the value of the property unless specifically agreed in writing otherwise. |
| Habito | Higher of purchase price or valuation |
| Hampden | The open market value of the property according to the valuation report. |
| National Westminster Bank | An amount equal to the value of the property. |
| Nationwide Building Society | Purchase Price (valuation if price is at a discount). Contact Issuing Office for advice on a remortgage |
| Perenna | The higher of the purchase price or valuation. |
| Platform | 110% of principal sum. |
| Progressive BS | The limit of indemnity insurance should be the purchase price or valuation - whichever is higher. |
| Rely Mortgages | An amount at least equal to 110% of the mortgage valuation. |
| Rooftop Mortgages | The value of the property for mortgage purposes as disclosed in the valuation. |
| Skipton Building Society | For lender only cover we will accept a minimum of 110% (index-linked) of the amount of the loan. |
| Ulster Bank | An amount equal to the value of the 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. |
General Restrictive Covenant indemnity insurance points to consider
The full terms, conditions and exclusions for restrictive covenant indemnity insurance are shown in the policy paperwork. Conveyancing solicitors should point the borrower to the restrictive covenant indemnity insurance policy itself. The intention of restrictive covenant indemnity insurance is to grant indemnity in respect of the risks set out in the policy schedule - so you should check the schedule to ensure it is as it should be. The duration of this non-investment insurance contract is in perpetuity unless the policy says something to the contrary. Adequacy in this regard should be checked.Significant 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 Policies should be checked for the following- Money paid with the written consent of the insurance company to liberate the land from the risks specified in the restrictive covenant policy.
- The cost of 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 insurance, to the extent that such costs are rendered abortive by court decision.
- All other costs and expenses incurred by the Insured with consent in writing from the relevant insurer
- 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.
- Cover for compensation incurred in any proceedings concerning the risks specified in the restrictive covenant insurance, as well as fees of a legal nature.
- Diminution in value resulting from the successful enforcement of the risks specified in the restrictive covenant indemnity insurance.
Always consider what is not included in the restrictive covenant policy e.g. does the policy cover any property that has been altered within the year prior to the policy being put on risk? Are legal costs covered?
Supplemental considerations for restrictive covenant indemnity insurance
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 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.