Defective Lease Indemnity Insurance Lender conveyancing requirements
Natwest and Barclays, in common with many lenders, have their own requirements when it comes to defective lease indemnity insurance. The content herein aims to help conveyancing firms on the various bank approved list of panel lawyers where the title for the the property to be mortgaged contains defective lease. It is not a alternative for checking the CML handbook requirements for each bank, for example Coventry BS, Birmingham Midshires or Godiva Mortgages. The information on this page is not focused on defective lease indemnity insurance requirements.
Need help with defective lease indemnity insurance from your lender?
Yorkshire Building Society and HSBC as with the majority of lenders, instructions are such that where defective lease indemnity insurance is to be taken out:
- the defective lease indemnity insurance policy should not incorporate conditions that you know would invalidate or prejudice the interests of the mortgage company
- the defective lease indemnity insurance policy must be effected at no expense to the mortgage company
- your practice is duty bound to spell out to the mortgagor that the borrower is obliged to adhere to any conditions of the defective lease indemnity insurance policy and that the borrower should notify the bank of any notice or potential claim in respect of the policy
- you must disclose to the insurer all relevant information which you have gathered
- the level of indemnity must meet the requirements for the mortgage company (See Part II Handbook requirements )
- your firm must supply a duplicate of the defective lease indemnity insurance to the mortgagor and explain to the mortgagor why the defective lease indemnity insurance policy was effected and that additional insurance could be necessary if there is further lending against the security of the property
- the defective lease indemnity insurance policy needs to be in favor of the mortgage company and, if possible, in favour of the mortgagor and any next owner or mortgagee. Where the borrower will not be covered by the defective lease indemnity insurance policy, the mortgagor must be informed accordingly.
- you must approve the terms of the defective lease policy on behalf of the mortgage company
| 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. |
| Bank of Ireland Mortgages | The limit of indemnity must be an amount not less than the market value of the property. |
| Bank of Scotland | Not less than mortgage advance plus 10% |
| Darlington Building Society | The higher of value or purchase price of the property. |
| HSBC UK Bank | The value of the insurance must be for at least the full value of the property |
| Habito | Higher of purchase price or valuation |
| Harpenden Building Society | 110% of mortgage advance |
| 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. |
| Intelligent Finance | 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. |
| 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. |
| Magellan Homeloans | At least equal to the value of the property |
| Market Harborough Building Society | Purchase price or valuation - higher of the two |
| 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. |
| Reliance Bank | £1,000,000.00 |
| RBS - Direct Line One | An amount equal to the value of the property. |
| 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 extent of the terms for defective lease indemnity insurance are set out in the policy paperwork. Property lawyers are obliged to direct the borrower to the defective lease indemnity insurance policy paperwork. Defective Lease indemnity insurance is devised to grant indemnity in respect of the risks set out in the policy schedule - so you should check the document to determine that it is as it should be. 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.Significant aspects and benefits of defective lease Contingency insurance :
The insurance will normally cover where someone claims to be entitled to the benefit of the specified risks, stated in the defective lease indemnity insurance schedule. Defective Lease indemnity insurance Policies are likely to cover the following- Money paid with the written consent of the insurance company to liberate the land from the risks specified in the defective lease indemnity insurance.
- Expenses for works (including professional fees) for the purpose of the development started, prior to proceedings for the enforcement of the risks specified in the defective lease policy, to the extent that such costs are rendered abortive by court order.
- All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurer
- Reimbursement for compensation incurred in any action in respect of the risks specified in the defective lease policy, as well as legal and associated costs.
- 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.
- Diminution in value resulting from the successful enforcement of the risks specified in the defective lease indemnity insurance.
You also need to be sure that the answers on the application form are correct. Regardless of how remote a claim on the lender insurance policy might be you can be sure that the insurer will check the details on any proposal form very carefully prior to any claim being paid out.
Additional considerations for defective lease indemnity insurance
Defective Lease 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 defective lease indemnity cover will not necessarily be the answer.WhenIBought
Has a buyer's solicitor identified a lease defect years after your purchase, even though an indemnity policy was arranged at the time? What were you told about the defect and its implications for a future sale or remortgage? Visit WhenIBought's defective lease page to explore these questions and tell us what happened when you bought.
Content 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 lender 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.
An important exclusion applying to most defective lease Policies is if you make any contact with any party who might cause a claim under the Policy, it can invalidate the cover.
The content set out above is in relation to properties in England and Wales.