Mortgagees and insurance
Mortgagees and insurance

The following Property practice note provides comprehensive and up to date legal information covering:

  • Mortgagees and insurance
  • Statutory power to insure
  • Limits on the statutory power to insure
  • Application of insurance money
  • Mortgagor's express covenant to insure
  • Protecting the mortgagee's interest

Statutory power to insure

Where a mortgage is made by deed, the mortgagee has a statutory power, at any time after the date of the mortgage deed, to insure and keep insured against loss or damage by fire any building or effects or property of an insurable nature being or forming part of the mortgaged property. Premiums paid in maintaining insurance for a charge on the mortgaged property with the same priority and carrying interest at the same rate as the mortgage money.

The amount that can be insured under the statutory power is restricted to:

  1. the amount specified in the mortgage deed or, if none is specified,

  2. two thirds of the amount that would be required to restore the property in the event of destruction

The statutory provisions regarding insurance are capable of being varied or extended by the mortgage deed and any such variations or extensions, so far as possible, operate as if they had been contained in the legislation.

Limits on the statutory power to insure

The mortgagee's statutory power to insure cannot be exercised:

  1. where there is a declaration in the mortgage that no insurance is required

  2. where insurance is maintained by the mortgagor in accordance with the mortgage deed

  3. where there is no stipulation in the mortgage deed regarding insurance but insurance is maintained by the mortgagor with the consent of the mortgagee in

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