Forfeiture of Lease Indemnity Insurance Mortgage Company conveyancing requirements

Godiva Mortgages and Leeds Building Society, like many banks, set their own requirements when it comes to forfeiture of lease indemnity insurance. This page is designed to help domestic conveyancing practitioners on the various lender conveyancing panel where the title for the the property to be mortgaged incorporates forfeiture of lease. Solicitors should still check the Council of Mortgage Lenders’ handbook requirements for each mortgage company, for example Yorkshire Building Society, Accord or Santander. The information on this page is not focused on forfeiture of lease indemnity insurance requirements.

Need help with forfeiture of lease indemnity insurance from your lender?

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Birmingham Midshires and Barclays in common with most lenders, obligations require that where forfeiture of lease indemnity insurance is effected:

• you must approve the terms of the forfeiture of lease policy on behalf of the mortgage company
• the forfeiture of lease indemnity insurance policy must be placed on risk at no charge to the bank
• the minimum level of cover for the policy must satisfy the requirements for the bank (See Part II Handbook requirements )
• your practice is obliged to disclose to the insurer all relevant information which you have acquired
• your practice is duty bound to spell out to the mortgagor that the borrower is obliged to comply with any conditions of the forfeiture of lease indemnity insurance policy and that the borrower should notify the bank of any notice or potential claim in relation to the insurance
• the forfeiture of lease indemnity insurance policy should not contain conditions that you know would invalidate or prejudice the interests of the lender
• your firm must supply a copy of the forfeiture of lease indemnity insurance to the mortgagor and explain to the mortgagor why the forfeiture of lease indemnity insurance policy was effected and that additional insurance could be necessary if there is supplemental lending against the mortgaged property
• the forfeiture of lease indemnity insurance policy must be in favor of the mortgage company and, if possible, in favour of the borrower and any subsequent registered proprietor or bank. If the mortgagor will not be protected by the forfeiture of lease indemnity insurance policy, the borrower needs to be informed accordingly.

As to the level of cover for the forfeiture of lease indemnity insurance policy (or for that matter any indemnity insurance), consider the following sampling of Section 9.2 of the UK Finance handbook PII requirements for mortgage companies:

Forfeiture of Lease Contingency Insurance : Reflections

The full terms, conditions and exclusions for forfeiture of lease indemnity insurance are set out in the policy document. Conveyancing Practitioners are obliged to point your non-lender client to the forfeiture of lease indemnity insurance policy paperwork. The intention of forfeiture of lease 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 as it should be. 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.

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Important aspects and benefits of forfeiture of lease Contingency insurance :

This policy would usually provide protection from financial loss that might arise in the event of a third party making a cliam in respect of the risks identified in the policy document. Forfeiture of Lease indemnity insurance Policies are likely to cover the following

• 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.
• All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurer
• Liability for damages or compensation incurred in any action regarding the risks specified in the forfeiture of lease insurance, as well as incurred costs and expenses.
• Market value reduction resulting from the successful enforcement of the risks specified in the forfeiture of lease indemnity insurance.
• All sums paid with consent in writing from the insurance company to free the property from the risks specified in the forfeiture of lease policy.
• 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 forfeiture of lease insurance, to the extent that such costs are rendered abortive by court order.

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Don't forget to check what is not included in the forfeiture of lease indemnity insurance e.g. does the policy cover any residence that has been altered within the 12 months prior to the commencement of the policy? Are legal costs covered?

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Other considerations for forfeiture of lease indemnity insurance

There may be consequences arising from the enforcement of the risks identified in the forfeiture of lease policy which are not adequately covered by financial compensation.

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WhenIBought

If the forfeiture concern arises from a missing or inadequate mortgagee protection clause in your lease, did anyone explain that issue when you bought? WhenIBought's defective lease page discusses this type of lease provision. If it is now affecting your sale or remortgage, you can tell us what happened and what advice you remember receiving.

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The content set out above is in relation to properties in England and Wales.