Kensington Mortgage Company’s new answer to question 5.14.11a of the UK Finance Mortgage Lenders’ Handbook addresses leases that lack a mortgagee protection clause.
The instruction starts with the conveyancer’s professional judgement. Where the conveyancer considers that the lease requires a mortgagee protection clause and none is included, Kensington requires an appropriate solution before the transaction can proceed.
The wording identifies three routes: a deed of variation, a side agreement where a variation is not possible, or an indemnity insurance policy submitted to Kensington for approval.
What protection is Kensington seeking?
The protection described in the instruction gives the lender notice of a breach and an opportunity to address it before the landlord commences possession proceedings.
For a conveyancer acting on a leasehold purchase or remortgage, the task is therefore to examine the existing lease, assess whether the necessary protection is present and establish how any deficiency will be addressed.
This is not an instruction that every lease automatically requires a variation. The trigger is the conveyancer’s professional judgement that a mortgagee protection clause is required and is missing.
Option one: a deed of variation
Kensington’s first requirement is a deed of variation incorporating an appropriate mortgagee protection clause into the lease.
The clause must require the landlord and/or managing agent to notify the lender of a breach and allow sufficient time for the lender to remedy it before possession proceedings are commenced. Kensington specifies a minimum notice period of 28 days.
A deed of variation changes the lease itself. The drafting, parties, execution and any registration requirements therefore need to be considered for the particular transaction.
For buyers and existing owners, this may explain why a conveyancer raises a lease amendment even though the property has previously been mortgaged without an apparent difficulty.
Option two: a side agreement where a variation is not possible
Where a deed of variation is not possible, Kensington permits the conveyancer to arrange a side agreement with the landlord and/or managing agent.
The lender provides suggested wording which may be amended to reflect the circumstances. Its example requires the landlord to give Kensington at least 28 days’ prior written notice before commencing possession proceedings.
The example also addresses what happens if the lender responds within that notice period, or any longer period specified in the notice, confirming that it wishes to remedy the breach or address the issue. The landlord is then to allow a reasonable period for the necessary action, having regard to the nature and extent of the problem.
That distinction matters: the initial notice period is at least 28 days, but the example also provides for a reasonable period to act following the lender’s timely response.
Kensington requires the side agreement to be retained on the conveyancer’s file and a copy supplied to the lender before completion. Where possible, the suggested agreement should be completed on headed paper and signed and dated in wet ink.
A side agreement is a separate document rather than an amendment to the lease. Its parties, authority and legal effect need to be assessed rather than assumed from the use of the lender’s example.
Option three: indemnity insurance requires approval
Kensington may consider indemnity insurance, but this is not an automatic alternative to the other routes.
The proposed policy must be submitted to Kensington for approval, together with an explanation of why neither a deed of variation nor a side agreement can be obtained.
The policy must protect Kensington as lender, must not impose an obligation on the lender to notify or update the insurer, and must meet Kensington’s usual indemnity insurance requirements under the Handbook.
Conveyancers should therefore distinguish between obtaining an insurance quotation and obtaining the lender’s approval of the proposed policy. The availability of a policy does not, by itself, satisfy the instruction.
If none of the options is available, the case cannot proceed
Kensington’s wording is explicit: if none of the three options is available, the case cannot proceed and the conveyancer must advise the lender accordingly.
The instruction also requires all lender enquiries, supporting documentation and required information to be submitted before the certificate of title is submitted.
This makes early identification important. Leaving the issue until funds are about to be requested can create avoidable pressure on the borrower, seller, landlord and conveyancers.
What this means for the Kensington conveyancing panel
Firms acting for Kensington need to incorporate the requirement into their lease review and lender reporting procedures. Panel membership does not remove the need to check the instructions applicable to the individual matter.
Borrowers looking for a conveyancer can use the Kensington Mortgage Company conveyancing panel directory. The appointed firm’s ability to act on the particular transaction should be confirmed before instruction.
Our older article on Kensington’s changes to buildings insurance requirements provides a separate historical example of lender-specific instructions changing over time. Those buildings insurance requirements should not be confused with the indemnity insurance considered under this mortgagee protection clause instruction.
Why a deed of variation can become a problem when selling
A missing clause may come to light when an owner sells or remortgages, even if it did not cause an obvious difficulty during the original purchase.
The owner may then need to locate an earlier variation, establish whether it was completed or arrange a new document with the relevant parties. A side agreement or lender-approved insurance policy from an earlier transaction should not be assumed to satisfy a different lender’s requirements.
When I Bought’s guide to a deed of variation holding up a sale or remortgage explains why an outstanding, incomplete or unregistered variation can matter when a property returns to the market.
Our related article on leasehold problems buyers discover too late considers the wider importance of explaining the practical consequences of lease provisions before a purchase completes.
What did Kensington require on an earlier transaction?
The new wording should not be assumed to describe Kensington’s instructions at the date of an older purchase.
If a missing mortgagee protection clause raises questions about previous conveyancing, the historical lender instructions need to be established alongside the lease, mortgage offer, correspondence and any variation, side agreement or insurance policy obtained at the time.
The Lexsure archive of historical Kensington Mortgage requirements provides access to recorded requirements for relevant historical dates, subject to available coverage.
The archive also supports enquiries into other lender-instruction topics, including defective leases, ground rent escalation, missing easements, flying freeholds, Japanese knotweed and missing building regulations approval.
A later lender requirement does not, by itself, prove that the original conveyancing was defective. The historical record helps establish what the lender required at the relevant time.
The practical lesson
Identify the missing protection early, establish the appropriate route and complete the required lender reporting before submitting the certificate of title.
A deed of variation is Kensington’s first route. A side agreement is available where a variation is not possible. Indemnity insurance requires lender approval and an explanation of why neither document can be obtained.
Conveyancers should check the live UK Finance Mortgage Lenders’ Handbook and any transaction-specific Kensington instructions before relying on this summary.