Building Insurance - Blocks of flats.

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    Building Insurance - Blocks of flats.

    Building Insurance Blocks of flats.

    How Much To Insure

    First of all market value has little to do with this except in the hypothetical example of where in simple terms an insurer “writes off” a block and issues the owners, or their mortgagees, a cheque and keeps the premises.

    For those managing themselves or arguing with a freeholder or agent, it is tempting but mistaken to do a little web research, take sale prices and conclude that this must be the figure to use.

    Secondly the basis of valuation lies in the following broad areas
    1 the cost of constructing replacement premises
    2 the cost of site clearance and preparation before construction can begin
    3 the legal professional and related fees and expenses for that project

    To that is added
    4 the cost inflation on 1-3 over the time between the loss and the handing out of new keys
    5 additional risks such as alternative accommodation for owners and their renters
    6 associated claims from liability issues and claims from adjoining owners or the public
    7 not to mention contractual payments or losses such as long term or rental contracts or staff compensation which are still in place and even service charges and local taxes.

    In general the first group will reflect the sum insured and both the declared value, though this should be checked with the policies that you are choosing from as to exactly how they present these or in the later group, 5 to 7, might be additional policy risks. Care should be taken when using online quotes to ensure you have the right answers.

    How To calculate a sum for insurance purposes

    While it is not impossible to arrive at these yourself with a variety of online calculators which range from comical to satisfactory, and BCIS tables that can be purchased, there is little substitute for a formal valuation from a Chartered Surveyor. The main reason is that unlike like the simple schoolbook example, buildings are not always as simple as “10 flats in a wide open easily accessed site and of traditional construction”.

    The first step is assessing its construction and area at a rate per square meter/foot to reflect its quality. This then adjusted to take into account a number of factors which affect that outcome, as outlined in 1 2 & 3 above.

    Even a simple Victorian conversion requires judgement on the support to adjacent buildings, access to the site in a congested Victorian road, and the vagaries of the local planning process, especially when it comes to buildings of note where period features must be retained, which together, can substantially increase the costs and time. Knowledge of local geology and history is important in assessing flood and building movement e.g. subsidence, risks and factors peculiar to the locality, or even the building itself. Larger more complicated structures need more detailed assessment than a simple “X metres 2 x £x per sq metre”.

    The valuation can then be periodically updated, usually once a year, and with a desktop or re-inspection on average every 3 years or when there is notable change or loss. While insurers routinely index policies, that can get out synch with actual costs or the circumstances which affect your building, and in some cases even over insure.

    In cynical terms, should the valuation be inadequate in some way all Chartered Surveyors must have professional indemnity insurance which might resolve a loss or concern affecting an insurance payout.

    Placing Insurance

    Terms Of The Lease

    In general the terms of the lease will dictate what the landlord ( be you freeholder head lessor, party to the lease manager or right to manage body) has to insure and what costs they can recover.

    In most cases the provisions are comprehensive and the various forms of “blocks of flats policy” available will normally be recoverable in service charge, or determined as fair and reasonable at tribunal.

    It is vital to
    -read and understand those clauses and your offered policies to ensure that you are insuring what you need to and that the policy is adequate, and
    -the lease supports your decisions

    In some leases particularly older ones, the provisions are quite limited, often restricted to “fire insurance” as they were referred to even into the early 1980’s. In these cases or where you might be unclear on, or wish to exceed the scope of these clauses, even if they appear “free” or are sensible and desirable, legal advice or determination on recovery is a must.

    Being underinsured or over insured in terms of risk, desirable as it might seem, and therefore in most cases premium, can lead to a cost liability for you, the landlord, which is not recoverable in the service charge. This is particularly important for residents groups/companies who may have no other source of funding than service charge.

    Terms Of the Policy

    As most insurers offer standard policies on their website a simple review of these will quickly explain to you the scope of cover without needing to outline them here.

    It is vital that the potential policies are read and understood especially in regard to exclusions and scope of liability, especially where risks might be more complicated. It can be anything from excesses, especially on water damage, trace and access (opening up to find the source of the problem), any limitations on payout where the building is older and maintained at less than the desirable level “new for old”, to actions of third parties such as tenants leaving the oven on or not using the shower curtain. Polices can restrict cover on subletting and so if the leases allow subletting, the policy will need to be adjusted to suit.

    What is included is also an issue. In modern developments, infrastructure roads and lighting, and even main drains, might not adopted and therefore insurance will have to include these. Outbuildings fences and other structures separate to the main building might be excluded from cover, ensuring that contents of common parts are also included, and specialist systems not allowed for in the rebuilding sums above, or added or altered later on, such as car park gates or CCTV systems etc, are included, or adjusted.

    A common grey area of risk is loss of rent and care should be taken to see if it is recoverable and if it is limited solely to a landlords’ ground rents and not as often assumed a leaseholders’ loss of a renters rent payments.

    Liability risks are also a concern, not solely for public liability, but for users of the premises some of which include leisure facilities such as play areas pools etc, and where staff are employed. In residents groups liability claims can be launched on the company or individuals and therefore directors and officers or Residents Association insurance should be looked at as well. In these risks a carful assessment must be made of the potential level of claims and risks, as standard cover amounts may be inadequate.

    Staff will require employers liability cover as well and it is sensible to extent legal fees cover to cover this where possible.

    For that matter it is well worth looking at the addition of legal expenses cover to deal with litigation issues.

    Claims History

    This is essential in obtaining insurance as it will affect calculations on premium and in some cases the scope of cover. Even after insuring it is vital to monitor claims, not only to check for abuses, but to see common issues that might be resolved by management steps. In one case years of frequent leaks were eliminated by simply sending in a plumber to tighten all dishwasher and washing machine connections in all flats, and in another ensuring that all internal alterations to plumbing were approved licensed and checked.

    Engineering Insurances

    While buildings insurance may cover replacement of a lift in the event of destruction by an inured peril eg fire, the operation or an incident involving these installation must be insured and inspected regularly under statute, statutory guidance, as well as manufacturer guidance. Policies are available for inspection services and cover for sudden and unforeseen damage including breakdown of lifting and electrical plant, explosion and collapse of pressure plant, damage to surrounding property, lifted goods and storage tanks etc. In most buildings this involves lift and communal boilers, but extends also to gates and mechanical entry systems, fire systems, air handling/conditioning, water systems (pumps tanks etc) car park stacking systems etc and seven some staff equipment such as cleaning or gardening equipment or manual handling such as powered hand carts trolleys etc. Even computer systems need review, from the basic desktop to those that control these and entry systems, as their loss or damage can be problematic and expensive and not covered by common buildings, or contents, cover.

    In some buildings new energy related system’s such as turbines solar panels and water recovery systems need to be reviewed and covered as required. As mentioned above in un adopted estates, specific cover may be needed for items such as street lighting or play areas and leisure areas too.

    In conclusion the basis c steps are
    1 check the lease for the scope of cover and recoverability of costs
    2 read and understand the offered policies
    3 adequately assess what you are in control of, have to insure and an appropriate level of cover
    4 put in a policy to review this

    While some or all can be completed on a DIY basis, do not underestimate the consequences of not, and benefits of, taking professional advice from a suitable surveyor or assessor and using a suitably experienced broker. The nodding dog might help with some simple issues but many blocks needs not only more sophisticated help, but both need accurate assessments of what to insure from you.
    Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

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