It will come as no surprise a key role of a managing agent should be to ensure that every building entrusted to their management has adequate insurance cover. Come fire, flood, rain or structural failure you should feel safe in the know that the buildings insurance policy will cover the damage. However, like banks, there is a bit of a suspicion that insurers only offer you an umbrella when it’s sunny. As soon as they sense rain, they try and take it away.
One of the terms in the small print is the need to have an adequate level of cover. The total value of cover is referred to as ‘sum insured’. Whilst this can be rolled over year on year, with the insurers applying an inflationary index, it is highly recommended that a chartered surveyor completes a revaluation exercise on every building every three years (Source: RICS).
A recent survey showed that circa 80% of UK properties were under-insured…. So here are some reasons why spending a bit of money on professional fees is worth it:
- The annual insurance premium
Usually paid by the leaseholders, through their service charges, the insurance premium is directly related to the size of the sum insured figure. The insurers will increase the sum insured figure through indexing every year, but this not linked to housebuilding costs, and it doesn’t take long before the sum insured figure is incorrect. The annual premium also rises accordingly. Unless a valuation is completed regularly, there is every likelihood that the building is over or under insured.
- An insurance claim
In the event of a large insurance claim, the insurers will ask for evidence that a valuation has been completed within three years of the claim. If evidence cannot be provided, they will arrange their own valuation at the expense of the insured. If as a result of their valuation, the building is found to be over or under insured, the claim settlement figure could be reduced by the same percentage.
- Potential breach of contract
By not having the building correctly insured, the freeholder or RTM / RTC is likely to be in breach of the terms of the lease agreement. Leaseholders could recover the cost of any inflated premiums for previous years through application to the First Tier Tribunal. Incorrect charges for insurance premiums may also make it difficult to take legal action against leaseholders for the non-payment of service charges. Where a Right to Manage (RTM) company operates, this breach is also enough reason for the freeholder to be able to wrestle back control of the daily management of the building.
In short, this is something worth a belt and braces approach. If you have any queries, please do not hesitate to contact us about your property and when your reinstatement value was last carried out.