CLSQ has launched a Lack of Mortgagee Protection Clause policy to smooth the conveyancing process on leasehold properties where there is no mortgagee protection clause included in the lease, or where the clause is defective.
The policy insures a lender for any shortfall on the mortgage advance on a leasehold property following re-entry and/or forfeiture of a borrower’s lease by the freeholder.
Claim scenarios where the lease is forfeited include non-payment of ground rent and/or service charges, breach of covenants, bankruptcy or insolvency, or failure to comply to lease obligations.
Chantelle Wren, Cert CII. Associate Director, Underwriting at CLS Property Insight, says:
“A mortgagee protection clause is included within most leases to protect the lender, should the borrower breach the lease for any reason. It enables the lender to be notified that the lease is at risk of forfeiture and provides the lender with the opportunity to remedy the breach prior to the Landlord re-entering the property.
“Where there is no mortgagee protection clause in existence, the lender does not have the protection they will be notified by the freeholder of any lease breach by the borrower that could lead to forfeiture of the property.
“Property purchasers may be unable to secure a mortgage where this clause is absent from the lease unless the freeholder agrees to amend the lease by way of Deed of Variation; which can be costly and time-consuming, causing delays and additional expense to the Conveyancing process. or, unless they can take out insurance.”
2 Responses
I hope conveyancers are considering:-
a) the rights of a lender to relief from forfeiture under section 146 Law of Property Act 1925; and
b) the requirement for them to be given notice of any proceedings under section 55.4 of Practice Direction 55A to the Civil Procedure Rules
before making their clients pay for these often unnecessary policies.
Given the above requirements I’m not sure that I agree with Chantelle Wren that “where there is no mortgagee protection clause in existence, the lender does not have the protection they will be notified by the freeholder of any lease breach by the borrower that could lead to forfeiture of the property.”
Agreed!