Lender conveyancing panel conditions re Restrictive Covenant Indemnity Insurance

Accord and Barnsley BS, like most lenders, dictate their own specific instructions when it comes to restrictive covenant indemnity insurance. This page is designed to help property law firms on the numerous lender solicitors 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 mortgage company, be it Coventry BS, Bank of Scotland or Nationwide. The content on this page Is not to be read as restrictive covenant indemnity insurance advice.

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In your capacity as a property lawyer on a bank panel you must enquire whether the property has been built, altered or is currently used in breach of a restrictive covenant. Banks such as Accord, 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 Contingency insurance is taken out on completion of the mortgage (see section 9 of the Council of Mortgage Lenders’ Handbook).

If there is proof that the restrictive covenant has been breached and, only after reasonable due diligence, you are satisfied that the title is good and marketable ; you can provide an unconditional certificate of title to the lender and the breach has remained in existence for over 20 years unchallenged, then restrictive covenant indemnity insurance will not be insisted upon by the bank.

Godiva Mortgages and RBS in common with the majority of banks, instructions are such that where restrictive covenant indemnity insurance is to be taken out:

the level of indemnity must satisfy the requirements for the bank (See Part II Handbook requirements )
your firm must supply a duplicate of the restrictive covenant indemnity insurance to the borrower and explain to the borrower why the restrictive covenant indemnity insurance policy was effected and that additional insurance could be necessary if there is further borrowing against the security of the property
your firm is obliged to disclose to the insurer all relevant information which you have acquired
you is duty bound to explain to the borrower that the borrower is obliged to comply with 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 policy
the restrictive covenant indemnity insurance policy should always be in favor of the bank and, if possible, for the benefit of the mortgagor and any next registered proprietor or mortgagee. If the borrower will not be protected by the restrictive covenant indemnity insurance policy, you must advise the mortgagor of this fact.
your practice must approve the terms of the restrictive covenant policy on behalf of the mortgage company
the restrictive covenant indemnity insurance policy should be placed on risk without cost to the lender
the restrictive covenant indemnity insurance policy must not incorporate terms which you know would void or prejudice the interests of the mortgage company

Regarding the extent 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 mortgage companies:

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.
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.
Aviva Equity Release	Full value of the property.
Bank of Scotland	Not less than mortgage advance plus 10%
Barnsley 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.
Better HomeOwnership	An amount to cover the mortgage advance as a minimum.
Birmingham Bank	Please contact Head of Operations to discuss (Jackie Burchill)
Bradford & Bingley	Amount of loan + 15%
Darlington Building Society	The higher of value or purchase price of the property.
Fleet Mortgages	An amount at least equal to the valuation of the property.
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.
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.
New Street Mortgages	Must be for a minimum of 110% of the purchase price or valuation whichever is the greatest.
Paratus	An amount equal to 110% of the valuation or purchase price - whichever is the greater.
Pepper Money	An amount equal to at least 110% of 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 and also the borrower(s).
Reliance Bank	\xA31,000,000.00
Rely Mortgages	An amount at least equal to 110% of the mortgage valuation.
Skipton Building Society	For lender only cover we will accept a minimum of 110% (index-linked) of the amount of the loan.

General Restrictive Covenant indemnity insurance points to consider

The extent of the terms for restrictive covenant indemnity insurance are identified in the policy document. Property lawyers are obliged to direct your non-lender client to the restrictive covenant indemnity insurance policy itself. The intention of restrictive covenant indemnity insurance is to provide indemnity in respect of the risks set out in the policy schedule - so it is essential check the schedule to determine that it is in order. The continuance of this non-investment insurance agreement is in perpetuity unless otherwise stated in the restrictive covenant indemnity insurance policy. Again, please check that this is as you expected.

Restrictive Covenant Contingency insurance: Important characteristics 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 Policies are likely to cover the following

Diminution in value resulting from the successful enforcement of the risks specified in the restrictive covenant insurance.
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.
Liability for damages or compensation incurred in any proceedings concerning the risks specified in the restrictive covenant insurance, as well as incurred costs and expenses.
Money paid with consent in writing from the insurance company to liberate the property from the risks specified in the restrictive covenant indemnity insurance.
The cost of works (including architects’ and surveyors’ 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.
All other costs and expenses incurred by the Insured with the written consent of the relevant insurer

Don't forget to check what is excluded from the restrictive covenant policy e.g. does the policy cover any residence that has been altered within the 12 months prior to the policy being put on risk? Does it cover legal costs?

Further considerations for restrictive covenant indemnity insurance

Restrictive Covenant insurance may satisfy lenders such as Birmingham Midshires or Chelsea BS and prevent clients from from suffering financially but it cannot compensate for the stress and inconvenience the emotional suffering - after all the value of a home cannot always be measured in cash in the eyes of the owner.

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 contained within this webpage is for general information for Regulated law firms in England and Wales on the the bank conveyancing 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 above information covers to properties in England and Wales.