Lender conveyancing panel requirements re Restrictive Covenant Indemnity Insurance

Santander and Skipton, in common with most mortgage companies, dictate their own specific instructions when it comes to restrictive covenant indemnity insurance. This page is designed to help conveyancing practitioners on the various lender conveyancing panel where the title for the the property to be mortgaged contains restrictive covenant. Lawyers are advised to familiarise themselves with the CML handbook requirements for each bank, for example Bank of Scotland, Lloyds TSB or Godiva Mortgages. The content on this page Is not to be read as restrictive covenant indemnity insurance advice.

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Being a property lawyer on a mortgage company panel you must enquire whether the property has been built, altered or is currently used in breach of a restrictive covenant. Banks such as Santander, Skipton or Bank of Scotland rely on you to check that the covenant is not enforceable. Should you be unable to issue an unqualified COT 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 indemnity 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 that the restrictive covenant has been breached and, only after reasonable enquiries, you are satisfied that the title is good and marketable ; you are able to issue an unqualified COT to the mortgage company and the breach has remained in existence for more than twenty years unchallenged, then restrictive covenant indemnity insurance will not be mandated by the mortgage company.

Barclays and HSBC as with the majority of banks, instructions are such that where restrictive covenant indemnity insurance is to be taken out:

the minimum level of cover for the policy must satisfy the requirements for the mortgage company (See Part II Handbook requirements )
the restrictive covenant indemnity insurance policy must be placed on risk at no cost to the lender
the restrictive covenant indemnity insurance policy should always be for the benefit of the lender and, wherever possible, for the benefit of the borrower and any future registered proprietor or mortgage company. Where the mortgagor will not be covered by the restrictive covenant indemnity insurance policy, the mortgagor should be informed accordingly.
you must explain to the mortgagor that the borrower must comply with 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 policy
your practice is obliged to disclose to the insurer all relevant information which you have gathered
you must provide 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 required if there is additional borrowing against the mortgaged property
the restrictive covenant indemnity insurance policy should not incorporate conditions which you recognise would void or prejudice the interests of the mortgage company
your firm are responsible for approving the terms of the restrictive covenant policy on behalf of the bank

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 Section 9.2 of the Part 2 requirements for banks:

Lender	Requirement
April Mortgages	An amount at least equal to the mortgage advance.
Bank of Scotland	Not less than mortgage advance plus 10%
Barclays plc	Higher of purchase price or valuation
Birmingham Bank	completions@birminghambank.com
Chelsea 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.
Gen H	An amount equal to the value of the property unless specifically agreed in writing otherwise.
Godiva Mortgages	Minimum of the value of the property.
Hampden	The open market value of the property according to the valuation report.
Hodge Equity Release	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.
Landbay Partners	An amount equal to 100% of the property valuation or purchase price (whichever is greater) plus 10%.
Landmark	Preference for full market value of the property, but if this level of cover is not available, will accept a minimum of the actual loan amount. You must approve the policy on our behalf.
Paratus	An amount equal to 110% of the valuation or purchase price - whichever is the greater.
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.
St James Place	An amount at least equal to the total of the initial mortgage advance plus any pre-agreed reserve. These amounts will be shown in the mortgage offer.
RBS - Virgin One	An amount equal to the value of the property.
Together Personal Finance	Minimum of £2,000,000.00 per claim.
Vida Homeloans	It must be for a minimum of 110% of the purchase price or valuation, whichever is greater
Whistletree	The value of the property

Non lender-specific considerations

The full terms, conditions and exclusions for restrictive covenant indemnity insurance are set out in the policy paperwork. Conveyancing solicitors should point the borrower to the restrictive covenant indemnity insurance policy document. Restrictive Covenant indemnity insurance is devised 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 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.

Important aspects and benefits of restrictive covenant Contingency 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

Money paid with the written consent of the insurance company to liberate the property from the risks specified in the restrictive covenant policy.
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.
Loss in market value resulting from the successful enforcement of the risks specified in the restrictive covenant indemnity insurance.
Expenses for works (including professional fees) for the purpose of the development commenced, prior to proceedings for the enforcement of the risks specified in the restrictive covenant indemnity insurance, to the extent that such costs are rendered abortive by court decision.
All other costs and expenses incurred by the Insured with the written consent of the relevant insurance company
Liability for damages or compensation incurred in any action concerning the risks specified in the restrictive covenant insurance, including legal and associated costs.

You also need to be sure that the answers on the application form are correct. Regardless of how remote 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 paid out.

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.

A good example is an additional structure such as a granny annex may have to be removed but indemnity insurance will not compensate for the loss of separate but adjoining accommodation for an elderly relative in need of care. the lender may not care about such consequences but your other client so consideration needs to be given to explain these potential implications.

Information provided on this webpage is for general information for conveyancers and solicitors in England and Wales on the the bank approved panel, it does not constitute advice for members of the public who should contact their lawyer for advice relating to the bank 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 content set out above covers to properties in England and Wales.