Indemnity Insurance of Absentee Freeholder Mortgage Company conveyancing requirements
Barnsley BS and Nationwide, in common with most banks, set their own requirements when it comes to absentee freeholder indemnity insurance. The content herein aims to help property law lawyers on the numerous bank solicitors panel where the title for the the property to be mortgaged contains absentee freeholder. It is not a substitute for checking the Council of Mortgage Lenders’ handbook requirements for each bank, for example Chelsea BS, Virgin Money or Yorkshire Bank Home Loans. The information on this page Is not to be read as absentee freeholder indemnity insurance advice.
Need help with absentee freeholder indemnity insurance from your lender?
Being a conveyancing practitioner on a lender panel you must notify to the mortgage company (see PII of the UK Finance Lenders’ Handbook) if it becomes apparent that the freeholder is either missing or insolvent. If the lender are to lend, they may ask you to take out missing freeholder indemnity insurance. In some conveyancing transactions a buyer or mortgage company might accept a missing freeholder indemnity policy but many buyers or lenders will not accept this as a solution. See 5.14.15 to see if the lender accept indemnity insurance if the freeholder is absent or insolvent. Examples of such requirements as follows:
| Lender | Requirement |
|---|---|
| Adam & Company International | No, but may be accepted with our prior written approval. Please refer individual cases. See 1.11 |
| Barclays plc | Yes, provided the conveyancer is satisfied that the insurance provides an adequate solution to the issue identified, including issues of unknown restrictive covenants, and an unqualified certificate of title can be provided. (further guidance is provided in section 9) |
| Legal & General Home Finance | Please refer to the underwriting department. If indemnity insurance is accepted you must ensure that the insurance will make the title good and marketable and the insurance policy complies with the requirements of section 9. |
| Pepper Money | No, Pepper Money does not lend where the landlord is absent or insolvent. |
| Tandem Bank | Yes, indemnity insurance is acceptable provided that you are satisfied that the insurance will make the title good and marketable. |
| Topaz Finance | No. |
| Vida Homeloans | Vida Homeloans may accept indemnity insurance if the landlord is absent or insolvent, provided: • It meets our requirements in section 9, • There are 6 or less flats in the building, and • You must be satisfied that the insurance will make the title good and marketable and you can give an unqualified Certificate of Title |
About Absentee freeholder Indemnity Insurance
Many lawyer across the UK regularly rely on missing freeholder policies to help move the conveyancing process when the freeholder or freeholder of land or residence is insolvent, unresponsive or where the company is no longer in existence. This impacts the ability to pay ground rent and obtain permission to lease assignments and alterations to the premises. The potential loss is that the freeholder may request ground rent or try to forfeiture of the lease alleging breach of covenant should they subsequently appear.
Barclays and Skipton like many banks, obligations require that where absentee freeholder indemnity insurance is to be taken out:
- your practice must explain to the borrower that the borrower is obliged to comply with any conditions of the absentee freeholder indemnity insurance policy and that the borrower should notify the bank of any notice or potential claim in respect of the policy
- the level of indemnity must satisfy the requirements for the bank (see UK Finance Lenders’ Handbook Part 2 )
- the absentee freeholder indemnity insurance policy must not incorporate conditions which you recognise would invalidate or prejudice the interests of the lender
- your practice are responsible for approving the terms of the absentee freeholder policy on behalf of the lender
- the absentee freeholder indemnity insurance policy must be effected without expense to the mortgage company
- your practice must reveal to the insurer all relevant information which you have acquired
- your firm must provide a copy of the absentee freeholder indemnity insurance to the borrower and explain to the mortgagor why the absentee freeholder indemnity insurance policy was effected and that a further policy might be mandatory if there is further borrowing against the security of the property
- the absentee freeholder indemnity insurance policy must be in favor of the mortgage company and, wherever possible, in favour of the mortgagor and any subsequent owner or bank. If the borrower will not be covered by the absentee freeholder indemnity insurance policy, you must advise the mortgagor of this fact.
| Lender | Requirement |
|---|---|
| Adam & Company International | The open market value of the property according to the valuation report. |
| Ahli United Bank | An amount equal to the value of the Mortgaged Property |
| Barclays plc | Higher of purchase price or valuation |
| Family Building Society | An amount at least equal to the mortgage advance. |
| Hinckley and Rugby | The policy must be for our benefit and for no less than the amount lent to the borrower, including retentions, stage payments and interest. |
| Legal & General Home Finance | The policy should be for the full market value of the property and indexed linked. The policy must be for our benefit, and for the benefit of the borrower where available. The policy must benefit all successors and assigns. |
| Lloyds | The value of the property. |
| Lloyds Bank Private Banking | Not less than the Facility plus 10%. |
| MPowered Mortgages | Either the minimum reinstatement value or where there is no valuation the market value/purchase price figure (whichever is higher). |
| Nationwide Building Society | Purchase Price (valuation if price is at a discount). Contact Issuing Office for advice on a remortgage |
| 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). |
| Skipton Building Society | For lender only cover we will accept a minimum of 110% (index-linked) of the amount of the loan. |
| TSB | The value of the property |
| Tandem Bank | An amount at least equal to 110% of the purchase price or valuation – whichever is the greater. |
| RBS - Direct Line One | An amount equal to the value of the property. |
| Together Personal Finance | Minimum of £2,000,000.00 per claim. |
| Topaz Finance | 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. |
| Vida Homeloans | It must be for a minimum of 110% of the purchase price or valuation, whichever is greater |
| Virgin | We require the full market value of the Property. Where this isn't available, we'll accept the loan amount as a minimum. |
| Yorkshire 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. |
Absentee Freeholder Contingency Insurance : Reflections
The full terms, conditions and exclusions for absentee freeholder indemnity insurance are identified in the policy document. Property lawyers should point the borrower to the absentee freeholder indemnity insurance policy itself. The intention of absentee freeholder indemnity insurance is to provide indemnity in respect of the risks set out in the policy schedule - so you should check any draft to determine that it is in order. The duration of this non-investment insurance agreement is in perpetuity unless otherwise stated in the absentee freeholder indemnity insurance policy. It is well worth checking that the time frame is correct.Important features and benefits of absentee freeholder Contingency 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. Absentee Freeholder indemnity insurance Cover normally includes- The cost of works (including architects’ and surveyors’ fees) for the purpose of the development commenced, before the commencement of proceedings for the enforcement of the risks specified in the absentee freeholder policy, to the extent that such costs are rendered abortive by court decision.
- 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.
- Market value reduction resulting from the successful enforcement of the risks specified in the absentee freeholder policy.
- Money paid with the written consent of the insurance company to free the property from the risks specified in the absentee freeholder policy.
- Cover for compensation incurred in any proceedings regarding the risks specified in the absentee freeholder indemnity insurance, including incurred costs and expenses.
- All other costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
As is the case with all conventional insurance, all material information needs to be disclosed to the insurance company at the outset and throughout the policy term, otherwise the absentee freeholder policy will not be valid.
Other considerations for absentee freeholder indemnity insurance
Bear in mind, that if a covenant is breached and changes have to be made, simply getting monetary compensation from absentee freeholder insurance may be adequate for your client.WhenIBought
Was the freeholder already absent when you bought, but the practical difficulties have only emerged years later? You may now need consent, insurance information or replies to your buyer's enquiries. Visit WhenIBought's absent freeholder page to consider what you understood at purchase, including any explanation of indemnity insurance, and tell us about the problem you face now.
The content set out above is in relation to properties in England and Wales.