This quarter has seen the Loan Market Association (LMA) publish a template insurance broker’s letter in an attempt to streamline and improve the process of agreeing broker letters in LMA real estate finance transactions. Anyone who has had the pleasure of negotiating and agreeing these letters will know that at times the process can be arduous and even delay a transaction.
For those unfamiliar with broker letters, their aim is to obtain various confirmations in respect of property insurance to lenders so that the lenders may place reliance on the underlying insurance. Amongst other things, confirmations usually include statements such as that the insurance complies with loan covenants, premiums have been paid and the broker is not aware of anything that would invalidate the insurance. The LMA broker letter has been pulled together by law firms, traditional and non-traditional lenders, insurance bodies and insurers, with the aim of creating a balanced position for both insurers and lenders.
The new letter provides reliance to all financial parties involved and their successors rather than providing a lesser position which is unhelpful and often unacceptable to lenders. To support the broker, certain confirmations are expressed to be made only on the completion of the transaction rather than throughout the term of the ensuing loan. Amongst other additions are the broker’s confirmation that the insurance is assignable (to comply with a lender’s security requirements) and that the insurer will give a lender notice in the event it is to take action to cancel the insurance. Deal-specific requirements will still cause sections of the broker letter to be tailored on a case-by-case basis, but the LMA has also produced a helpful user guide to accompany the standard form letter.
Ultimately, the introduction of the LMA insurance broker’s letter should help clarify and reinforce market standard terms, providing an established starting point for negotiations. This position should then only improve further with time and should be welcomed by the market. However, whilst the new letter certainly represents progress, it will still always pay to begin letter negotiations as early as possible in transactions.
Daniel Whebell, Associate, Fladgate LLP (firstname.lastname@example.org)