Mortgage Company conveyancing panel conditions re Restrictive Covenant Indemnity Insurance
Chelsea BS and Barclays, in common with most lenders, have their own specific instructions when it comes to restrictive covenant indemnity insurance. This page sets out to enlighten property law lawyers on the different lender approved list of panel lawyers where the title for the the property to be mortgaged includes restrictive covenant. Solicitors should still check the CML handbook requirements for each bank, be it Accord, Yorkshire Bank Home Loans or Virgin Money. The information on this page is not focused on restrictive covenant indemnity insurance requirements.
Need help with restrictive covenant indemnity insurance from your lender?
Being a conveyancing practitioner on a mortgage company panel you must enquire whether the property has been built, altered or is currently used in contravention of a restrictive covenant. Lenders such as Chelsea BS, Barclays or Accord rely on you to check that the covenant is not enforceable. If you are unable to issue 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 indemnity insurance is in place on completion of the mortgage (see UK Finance Lenders’ Handbook section 9).
Should your investigations reveal proof that the restrictive covenant has been breached and, after having conducted reasonable due diligence, you are satisfied that the title is good and marketable ; you are in a position to submit an unconditional COT to the bank and the breach has remained in existence for more than 20 years unchallenged, then restrictive covenant indemnity insurance will not be mandated by the bank.
Nationwide and Lloyds TSB like many mortgage companies, obligations require that where restrictive covenant indemnity insurance is to be put on risk:
- your practice 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 could be mandatory if there is further borrowing against the mortgaged property
- the restrictive covenant indemnity insurance policy should be effected without cost to the lender
- the restrictive covenant indemnity insurance policy needs to be in favor of the lender and, wherever possible, in favour of the mortgagor and any next owner or lender. Where the borrower will not be protected by the restrictive covenant indemnity insurance policy, the borrower should be informed accordingly.
- the minimum level of cover for the policy must meet the requirements for the mortgage company (see UK Finance Lenders’ Handbook Part 2 )
- your practice is required to disclose to the insurer all relevant information which you have obtained
- your firm must approve the terms of the restrictive covenant policy on behalf of the lender
- your firm must explain to the borrower that the borrower will need to adhere to any conditions of the restrictive covenant indemnity insurance policy and that the mortgagor should notify the lender of any notice or potential claim in relation to the insurance
- the restrictive covenant indemnity insurance policy should not incorporate terms that you know would invalidate or compromise the interests of the bank
| Lender | Requirement |
|---|---|
| Aviva Equity Release | Full value of the property. |
| Bank of Ireland | The limit of indemnity must be an amount not less than the market value of the property. |
| Bank of Scotland | The value of the property. |
| Better HomeOwnership | An amount to cover the mortgage advance as a minimum. |
| Coventry Building Society | Minimum of the value of the property. |
| First Direct | The value of the insurance must be for at least the full value of the property |
| Hampden | The open market value of the property according to the valuation report. |
| Keystone Property Finance | An amount equal to 110% of the valuation or purchase price - whichever is the greater |
| LendInvest | An amount at least equal to the valuation of the property. |
| Lloyds Bank Private Banking | Not less than the Facility plus 10%. |
| 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. |
| Precise Mortgages 2026 | An amount at least equal to 110% of the mortgage valuation. |
| Progressive BS | The limit of indemnity insurance should be the purchase price or valuation - whichever is higher. |
| Rooftop Mortgages | The value of the property for mortgage purposes as disclosed in the valuation. |
| The Mortgage Business | An amount at least equal to the mortgage advance/credit limit - whichever is the highest. |
| The Mortgage Lender | An amount at least equal to the mortgage advance. |
| Royal Bank of Scotland -Natwest One | An amount equal to the value of the property. |
| RBS (One Account) | An amount equal to the value of the property. |
Non lender-specific considerations
The extent of the terms for restrictive covenant indemnity insurance are identified in the policy document. Property lawyers should point the borrower to the restrictive covenant indemnity insurance policy itself. Restrictive Covenant Contingency insurance is designed to afford indemnity in respect of the risks specified in the policy schedule - so you should check any draft to determine that it is in order. The continuance 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.Restrictive Covenant indemnity insurance: Significant features and benefits:
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- Diminution in value due to the successful enforcement of the risks specified in the restrictive covenant indemnity insurance.
- All other costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
- Reimbursement for compensation incurred in any proceedings regarding the risks specified in the restrictive covenant indemnity insurance, as well as legal and associated costs.
- Expenses for works (including architects’ and surveyors’ fees) for the purpose of the development started, before the commencement of 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 order.
- Money paid with consent in writing from the insurance company to free the property from the risks specified in the restrictive covenant policy.
- The out of pocket expenses 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.
Don't forget to consider what is not included in the restrictive covenant indemnity insurance e.g. does the policy cover any residence that has been altered within the year prior to the policy being put on risk? Are legal costs covered?
Restrictive Covenant Indemnity Insurance has limitations - Additional considerations
Restrictive Covenant Indemnity insurance isn’t a solution to all of the relevant problems.A good example is an annex may have to be destroyed but indemnity insurance will not recompense for the loss of separate but adjoining accommodation for an elderly relative who needs occasional care. Whilst this is not necessarily of relevance to the lender it my be of importance to your non-lender client.
The content set out above is in relation to properties in England and Wales.