Restrictive Covenant Indemnity Insurance Mortgage Company conveyancing requirements
Yorkshire Bank Home Loans and Godiva Mortgages, as with many banks, dictate their own requirements when it comes to restrictive covenant indemnity insurance. This page sets out to enlighten conveyancing solicitors on the different mortgage company approved list of panel lawyers where the title to be charged includes restrictive covenant. Lawyers are advised to familiarise themselves with the CML handbook requirements for each bank, for example Yorkshire Building Society, HSBC or Barnsley BS. 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?
In your capacity as a solicitor on a mortgage company panel you must investigate whether the property has been built, altered or is currently used in breach of a restrictive covenant. Banks such as Yorkshire Bank Home Loans, Godiva Mortgages or Yorkshire Building Society rely on you to investigate whether the covenant is not enforceable. If you are unable to provide an unqualified certificate of title 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 on risk on completion of the mortgage (see UK Finance Lenders’ Handbook section 9).
If there is proof of a breach and, following reasonable investigations, you are assured that there is a good and marketable title ; you are in a position to submit an unqualified certificate of title 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 bank.
Accord and Natwest in common with the majority of lenders, obligations require that where restrictive covenant indemnity insurance is to be put on risk:
- the restrictive covenant indemnity insurance policy must not contain terms that you recognise would void or prejudice the interests of the lender
- the level of indemnity must satisfy the requirements for the mortgage company (see UK Finance Lenders’ Handbook Part 2 )
- the restrictive covenant indemnity insurance policy needs to be in favor of the bank and, if possible, in favour of the mortgagor and any future owner or bank. Where the mortgagor will not be covered by the restrictive covenant indemnity insurance policy, the mortgagor should be informed accordingly.
- your practice is required to reveal to the insurer all relevant information which you have acquired
- you is duty bound to spell out to the mortgagor that the borrower will need to comply with 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 insurance
- you are responsible for approving the terms of the restrictive covenant policy on behalf of the lender
- your practice must provide a duplicate of the restrictive covenant indemnity insurance to the mortgagor and explain to the borrower why the restrictive covenant indemnity insurance policy was effected and that a further policy might be mandatory if there is supplemental lending against the mortgaged property
- the restrictive covenant indemnity insurance policy should be placed on risk at no expense to the mortgage company
| Lender | Requirement |
|---|---|
| Allied Irish Bank | At least the amount of the mortgage advance. |
| Bank of China | Cover to full value of the property or the Mortgage Advance, whichever is the higher. |
| Barclays plc | Higher of purchase price or valuation |
| Birmingham Bank | Please contact Head of Operations to discuss (Gareth Allen) |
| Cynergy Bank | The market value of the property. |
| Darlington Building Society | The higher of value or purchase price of the property. |
| Family Building Society | An amount at least equal to the mortgage advance. |
| Gen H | An amount equal to the value of the property unless specifically agreed in writing otherwise. |
| Habito | Higher of purchase price or valuation |
| 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. |
| MPowered Mortgages | Either the minimum reinstatement value or where there is no valuation the market value/purchase price figure (whichever is higher). |
| New Street Mortgages | Must be for a minimum of 110% of the purchase price or valuation whichever is the greatest. |
| 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. |
| Skipton Building Society | For lender only cover we will accept a minimum of 110% (index-linked) of the amount of the loan. |
| RBS - Direct Line One | An amount equal to the value of the property. |
| RBS- First Active | An amount equal to the value of the property. |
| 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. |
| Virgin | We require the full market value of the Property. Where this isn't available, we'll accept the loan amount as a minimum. |
Restrictive Covenant Contingency Insurance : Reflections
The full terms, conditions and exclusions for restrictive covenant indemnity insurance are set out in the policy document. Conveyancing Practitioners are obliged to direct the borrower to the restrictive covenant indemnity insurance policy paperwork. Restrictive Covenant indemnity insurance is designed to grant indemnity in respect of the risks set out in the policy schedule - so it is essential check the document to determine that it is correct. The continuance of this non-investment insurance agreement 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: 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- All sums paid with the written consent of the insurance company to liberate the property from the risks specified in the restrictive covenant policy.
- All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurer
- 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 order.
- 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.
- Market value reduction due to the successful enforcement of the risks specified in the restrictive covenant policy.
- Liability for damages or compensation incurred in any proceedings in respect of the risks specified in the restrictive covenant insurance, including incurred costs and expenses.
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 commencement of the policy? Are legal costs covered?
Further considerations for restrictive covenant indemnity insurance
Bear in mind, that if a covenant is breached and changes have to be made, simply getting monetary compensation from restrictive covenant insurance may be adequate for your client.A good example is a granny annex may have to be removed but financial compensation does not compensate for the loss of separate but adjoining accommodation for an elderly relative who needs occasional care. the lender may not care about such consequences but your other client so consideration needs to be given to explain these potential implications.
The above information covers to properties in England and Wales.