Accord Mortgages has clarified its UK Finance Mortgage Lenders’ Handbook requirements for defective leases. The change is important because it distinguishes between lease defects that may be resolved with indemnity insurance and the absence of an acceptable Mortgagee Protection Clause, where a Deed of Variation must normally be attempted first.
Conveyancers should check Accord Mortgages’ complete lender instructions in force at the relevant time before relying on this summary.
What does section 5.14.11a cover?
Section 5.14.11a addresses whether Accord Mortgages will accept indemnity insurance where the lease is unsatisfactory. The answer is broadly yes, but it is not an unrestricted permission to insure over every defective lease.
For a lease defect falling outside the lender’s special Mortgagee Protection Clause scenario, insurance may be acceptable only where the conveyancer is satisfied that it provides an appropriate solution and can still give an unqualified Certificate of Title. A copy of the policy must be retained on the conveyancing file.
Those conditions matter. The existence of an available policy does not automatically establish that the defect has been resolved for the purposes of Accord Mortgages’ instructions. The acting conveyancer must reach a professional conclusion about the suitability and scope of the cover and whether the Certificate of Title can properly be given without qualification.
A different approach where the Mortgagee Protection Clause is missing
Accord Mortgages imposes a more specific process where the unsatisfactory feature is the absence of an acceptable Mortgagee Protection Clause, commonly abbreviated to MPC.
The clause is intended to protect a mortgage lender if the landlord proposes to take action to terminate the lease. Accord’s wording requires any lender to receive at least 28 days’ advance notice before such action is taken and a reasonable opportunity to remedy the alleged breach of lease.
Where that protection is missing, Accord Mortgages now requires:
- a Deed of Variation to be obtained so that an appropriate Mortgagee Protection Clause is incorporated into the lease;
- the conveyancer not to rely on notice provisions under the Civil Procedure Rules as a reason for failing to approach the landlord for the variation; and
- indemnity insurance to be considered as an alternative only if it is not possible to obtain the Deed of Variation, subject to Accord Mortgages’ requirements in section 9.
This is more than a general preference for improving the lease. It creates an order of approach. Where the defect is the missing MPC, the conveyancer should not move directly to an insurance policy simply because that route appears quicker or less expensive.
Why does the distinction matter?
A defective lease can contain missing, inadequate or poorly drafted provisions dealing with matters such as repair, insurance, access, service charges, enforcement or lender protection. Different defects create different risks, and an indemnity policy does not rewrite the lease.
A missing Mortgagee Protection Clause presents a direct risk to the lender’s security. If action could be taken to terminate the lease without adequate warning to the lender, the lender may lose the opportunity to remedy the breach and protect its charge. A Deed of Variation addresses the wording of the lease itself and is therefore Accord’s required first solution in this particular scenario.
Insurance may respond to defined financial consequences, but its scope depends on the policy. That explains why Accord requires the conveyancer to establish that a Deed of Variation is not possible before relying on insurance as the alternative solution.
What should Accord Mortgages panel firms do?
Firms acting on an Accord Mortgages transaction should build the distinction into their lease review and lender reporting procedures. In practical terms, the file should demonstrate:
- the precise lease defect that has been identified;
- whether the defect concerns the absence or inadequacy of an MPC;
- whether the landlord or freeholder was approached for a Deed of Variation where required;
- why a Deed of Variation could not be obtained if insurance is proposed instead;
- that any proposed insurance complies with section 9 and responds appropriately to the identified risk;
- that the conveyancer can give an unqualified Certificate of Title; and
- that a copy of the final policy is retained on the file.
The firm’s lender checklist and leasehold procedure should also make clear that Civil Procedure Rules notice provisions do not remove the obligation to approach the landlord for a Deed of Variation in the MPC scenario.
Our earlier article on a lender updating its leasehold policy illustrates the broader compliance point. Part 2 requirements change, and a leasehold procedure that was accurate when written may no longer reflect the instructions applying to a current transaction.
Insurance should match the defect
Before accepting or arranging a policy, the conveyancer should understand what risk it covers, who is insured, the limit of indemnity, the duration of cover and any restrictions on approaching the landlord or other parties. The policy must be a solution to the particular difficulty identified, not simply a document added to the file because the lease is defective.
Considering defective lease indemnity insurance?
Review the practical issues associated with defective lease cover, including the matters that should be considered before insurance is treated as an appropriate solution.
Read the LenderMonitor guide to defective lease indemnity insurance
Check panel membership before the transaction progresses
The conveyancer must also be eligible to act for Accord Mortgages. Borrowers and firms can use the panel search to check whether a solicitor appears on the Accord Mortgages conveyancing panel. Panel status should be confirmed at the beginning of the transaction rather than after a lease defect has already been identified.
What if the defective lease is discovered years later?
A lease defect may not become visible to the owner until a later sale or remortgage. A new buyer’s conveyancer may identify the missing clause, or a different lender may apply requirements that expose a weakness in the lease.
Where that happens, the original purchase file may show whether the defect was identified, what the lender required at the time, whether insurance or a variation was considered and what the buyer was told about future mortgageability and saleability.
Did a defective lease only come to light when you tried to sell or remortgage?
When I Bought explains why the advice and lender requirements applying when the property was originally purchased may matter.
The practical message from Accord Mortgages’ updated wording is clear. Indemnity insurance may resolve some defective lease problems, but it is not the automatic first answer where an acceptable Mortgagee Protection Clause is missing. In that situation, a Deed of Variation must normally be pursued first, and the file should record the steps taken and the reason for any alternative solution.