Indemnity Insurance of Restrictive Covenant Bank conveyancing requirements
Virgin Money and Coventry BS, like the majority of lenders, have their own requirements when it comes to restrictive covenant indemnity insurance. This page is designed to help property law solicitors on the different mortgage company solicitors panel where the title for the the property to be mortgaged contains restrictive covenant. It is not a substitute for checking the CML handbook requirements for each mortgage company, for example Godiva Mortgages, Leeds Building Society or Natwest. 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 lender panel you must conduct due diligence as to whether the property has been built, altered or is currently used in contravention of a restrictive covenant. Mortgage Companies such as Virgin Money, Coventry BS or Godiva Mortgages rely on you to check that the covenant is not enforceable. Should you be unable to provide an unqualified COT 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).
Should your investigations reveal evidence of a breach and, following reasonable due diligence, you are content that the title is good and marketable ; you are able to issue an unqualified COT to the bank and the breach has remained in existence for over 20 years unchallenged, then restrictive covenant indemnity insurance will not be insisted upon by the mortgage company.
Barnsley BS and Birmingham Midshires in common with the majority of banks, requirements are that where restrictive covenant indemnity insurance is effected:
- the minimum level of cover for the policy must satisfy the requirements for the mortgage company (see UK Finance Lenders’ Handbook Part 2 )
- the restrictive covenant indemnity insurance policy must not contain terms that you are aware would invalidate or compromise the interests of the lender
- the restrictive covenant indemnity insurance policy must be effected without expense to the bank
- your practice must approve the terms of the restrictive covenant policy on behalf of the bank
- your firm is duty bound to explain to the mortgagor that the borrower will need to adhere to any conditions of the restrictive covenant indemnity insurance policy and that the mortgagor should notify the bank of any notice or potential claim in respect of the policy
- the restrictive covenant indemnity insurance policy should always be in favor of the bank and, wherever possible, in favour of the borrower and any future owner or bank. Where the borrower will not be protected by the restrictive covenant indemnity insurance policy, you must advise the mortgagor of this fact.
- you must reveal to the insurer all relevant information which you have gathered
- you must send a copy 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 a further policy could be mandatory if there is additional lending against the mortgaged property
| Lender | Requirement |
|---|---|
| Ahli United Bank | An amount equal to the value of the Mortgaged Property |
| Bank of China | Cover to full value of the property or the Mortgage Advance, whichever is the higher. |
| Bank of Ireland | 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% |
| 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. |
| Birmingham Midshires | An amount equal to at least 110% of the purchase price or value, whichever is higher. |
| First Direct | The value of the insurance must be for at least the full value of the property |
| Habito | Higher of purchase price or valuation |
| Keystone Property Finance | An amount equal to 110% of the valuation or purchase price - whichever is the greater |
| MPowered Mortgages | Either the minimum reinstatement value or where there is no valuation the market value/purchase price figure (whichever is higher). |
| National Counties Building Society | An amount at least equal to the mortgage advance. |
| Nationwide Building Society | Purchase Price (valuation if price is at a discount). Contact Issuing Office for advice on a remortgage |
| Platform | 110% of principal sum. |
| Reliance Bank | £1,000,000.00 |
| St James Place | 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. |
| Tandem Bank | An amount at least equal to 110% of the purchase price or valuation – whichever is the greater. |
| RBS- First Active | An amount equal to the value of the property. |
| RBS (One Account) | An amount equal to the value of the property. |
| Whistletree | The value of the property |
| Zephyr Mortgages | 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. |
General Restrictive Covenant indemnity insurance points to consider
The full terms, conditions and exclusions for restrictive covenant indemnity insurance are set out 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 specified in the policy schedule - so you should check the schedule to ensure it is as it should be. The duration 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 Contingency insurance: Significant features and benefits:
The policy will normally cover where someone claims to be entitled to the benefit of the specified risks, stated in the restrictive covenant indemnity insurance schedule. Restrictive Covenant indemnity insurance Policies should be checked for the following- Expenses for works (including architects’ and surveyors’ fees) for the purpose of the development commenced, 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.
- 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.
- 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 proceedings regarding 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 land from the risks specified in the restrictive covenant insurance.
- Loss in market value resulting from the successful enforcement of the risks specified in the restrictive covenant indemnity insurance.
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 restrictive covenant policy will be invalidated.
Supplemental considerations for restrictive covenant indemnity insurance
Restrictive Covenant Indemnity insurance isn’t a solution to all of the relevant problems.A good example is a granny annex may have to be taken down but financial compensation cannot recompense for the loss of separate but adjoining accommodation for an elderly relative who needs occasional care. Whilst this is not necessarily of relevance to the bank it my be of importance to your non-lender client.
The content set out above covers to properties in England and Wales.