Do I Really Need a Reinstatement Cost Assessment?
Leanne Gresswell
The short answer? Yes. We've teamed up with Cardinus Risk Management to explain why...
The key purpose of a Reinstatement Cost Assessment (RCA), otherwise known as a Building Insurance Valuation, is to ensure that a property is adequately covered by the Buildings Insurance. This is achieved by establishing what it would cost to demolish and rebuild the property, as well as all of its peripheral features. A professionally conducted RCA will provide a complete assessment of a property’s rebuild costs, taking into consideration:
- The main structure (including foundations)
- Half of the cost of party walls/protecting adjoining structures
- The cost of demolition
- The cost of debris removal
- The cost of labour and materials
- The cost of professional fees
It will also take into consideration any unusual fixtures and fittings, or whether the building is listed. As well as the property's various peripheral features, which may include:
- Walls, fences and gates
- Garages, bin stores and outbuildings
- Car parking areas, drives & access roads (including private access roads)
- External lighting
- Sewage and water pumping plant
- Hard (and often soft) landscaping
- Swimming pools, tennis courts and other leisure facilities
Conducting regular insurance valuations means that the property can be insured on an 'agreed value', rather than an average. So that, should the worst happen, the property (and its leaseholders) are protected.
What are the implications of underinsurance?
Under-insurance can have a number of implications, here’s an example provided to us by Cardinus
Risk Management...
Consider a building with a current sum insured of £3,600,000. If we assume the rebuild value was actually £4,320,000 (in other words, it was undervalued by 20%) and a claim was made at a cost of £2,500,000 then, if insurers applied an averaging clause - saying the cover was only 83.33% of the true building value, the settlement made by insurers might be just £2,083,250 – leaving a shortfall of £416,750. That bill would then have to be met by the landlord or collectively by the leaseholders. This could have one or all of the following implications:
- Claims payment does not cover the full property repair/building cost
- Funds may not be available to complete the rebuild
- Increased borrowing may be required
- Negative impact on balance sheet
- Difficult negotiations with insurers
- Upset leaseholders and tenants
- Extended rebuild times
- Potential legal action (from lenders and leaseholders) for inadequate levels of cover
- Damage to reputation and brand
But, am I really likely to be underinsured?
You would be surprised at how many properties are deemed under-insured following a Reinstatement Cost Assessment, and often by a significant margin. In the past, we’ve seen properties under-insured by more than 20%. This could be due to a number of reasons, such as:
- The insurance being based on market value rather than the property’s declared value.
- The insurance being based on developers figures, which may not include costs such as debris removal or surveyor fees.
- Historical figures having been rounded up, without taking into consideration a rise in material and labor costs.
- A professional valuation hasn’t been carried out within the last three years or more.
It is recommended that a Reinstatement Cost Assessment is carried out every three years, at a minimum.
Ok, so how do I arrange a Reinstatement Cost Assessment?
If you think you need a Reinstatement Cost Assessment, please get in touch with your Property Manager. If we have one on file, we can provide you with a copy. Otherwise, we can arrange for one to be carried out on your behalf, via Cleaver Property Services’ risk management offering. We work predominantly with Cardinus Risk Management to provide this service to our clients.
The process of a Reinstatement Cost Assessment is as follows:
- Pre-visit Preparation - time spend researching the building to gain an initial understanding of its size and peripheral features.
- On-site Assessment - a qualified assessor will conduct a walk-around and measure up (according to the RICS code for measuring practice). A sketch plan will be drawn to record the footprint of the buildings, including the number of storeys present in each; this will be supported by a photo log. The assessor will then establish the gross external area of the buildings.
- Post-visit Report - the assessor will then compile a report, and carry out appropriate calculations to determine whether the property is over, under, or adequately insured. This would usually be measured against the building's current declared value.
We will always do our best to send you a reminder when your next RCA is due, and can also assist in arranging adequate Buildings Insurance cover, should you be declared under-insured; we are appointed representatives of Marsh Commercial, and regulated by the Financial Conduct Authority in respect of our insurance activities. If you have any further questions regarding Insurance Valuations and/or our Risk Management service, please don't hesitate to contact us.
A Huge Congratulations to Diana Bucataru on her latest academic achievement!
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In the realm of leasehold properties in the UK, the discussion surrounding stay put policies and evacuation policies has gained prominence in recent years. These policies determine how residents should respond in emergency situations, such as fires or other hazards. While both approaches aim to ensure safety, they present distinct perspectives on how to address such incidents. This blog post explores the key features of stay put policies and evacuation policies, shedding light on the UK's approach to maintaining safety within leasehold properties. UK's Approach and Regulations The UK's approach to stay put policies and evacuation policies in leasehold properties is influenced by building regulations and the advice of fire safety experts. Following the Grenfell Tower fire, an Independent Review of Building Regulations and Fire Safety was conducted, leading to a series of reforms to enhance fire safety in high-rise residential buildings. These reforms emphasise the importance of comprehensive fire risk assessments, improved building materials, enhanced evacuation plans, and communication systems. Stay Put Policies Stay put policies have been traditionally followed in many leasehold properties in the UK since the 1960s. Under this approach, residents are advised to remain within their units during a fire or other emergencies, unless their unit is directly affected. The rationale behind stay put policies lies in the construction and design of buildings, which are built to contain fires and prevent their spread. The compartmentalisation and fire-resistant materials used in these buildings are expected to provide residents with sufficient protection, allowing them to safely stay in their units until the fire is contained. Evacuation Policies In recent years, there has been a shift in thinking regarding stay put policies, particularly in high-rise buildings. The tragic Grenfell Tower fire in 2017 highlighted the potential risks associated with such policies, leading to a re-evaluation of safety practices. Evacuation policies prioritise the swift and immediate evacuation of residents during emergencies, regardless of the level of fire containment. This approach aims to minimise the potential for casualties and ensure the safety of all occupants. The successful implementation of this approach requires alarm and detection systems that are capable of alerting all residents promptly and enabling a timely evacuation. Conclusion Balancing the need for resident safety and the unique characteristics of leasehold properties is a complex challenge. While stay put policies have traditionally been followed, recent tragedies have highlighted the need for a re-evaluation of these approaches. The UK's approach is evolving, with a greater emphasis on prioritising resident safety through comprehensive fire risk assessments, improved building regulations, and effective evacuation strategies. It is crucial to ensure that the chosen policies in leasehold properties effectively protect residents, providing them with peace of mind and a secure living environment. To find out your building’s fire safety policy, see the fire safety notices by the entrance or contact your managing agent.
