Assessment of rebuild-value for Buildings Insurance

[funkster]

What is the best way to go about assessing rebuild-value for Buildings insurance purposes?

Leaseholders in this block of 4 flats are in the final stages of taking over Freehold by enfranchisement, and I have been trying to get quotes for new Buildings Insurance.

I found out from the Managing Agent the estimated rebuild-value used for Buildings Insurance, which I was told is also the sum insured. Through a broker, I got several quotes from major insurers which are very considerably lower than what we currently pay.

However, when I mentioned the subject to a couple of surveyors (in connection with another matter), they said the rebuild-value/sum assured, and hence the quotes, sounded much too low.

It therefore appears we should get a new, independent assessment of the re-build value so that we do not end up under-insuring.

The two surveyors mentioned could provide this, in conjunction with a report about the general structure of the building (which some leaseholders want : - the other matter I had initially phoned to discuss).

However, it seems that this survey ought to be done by a specialist Building Surveyor, which apparently these first two surveyors were not, and the only one of these I have asked says he does not do rebuild-values. Do I therefore have to get two separate surveys, or might another Building Surveyor be able to do both?

Advice gratefully received, thanks.

[quarterday]

It is a wee bit specialised as the valuation has to be on the basis that it is the cost of reconstruction including

a Demolition and site clearance (if the buildings partially destroyed by an insured peril)

b Infrastructure (ie pipes and connections to the networks such as for water, soil gas electricity and telephone)

c Landscaping

d Professional expenses such as architect and surveyors fees - (ask yourself if the Local Authority would require the buildings to be rebuilt identically and indeed if it would be desirable...)usually the rule of thumb is 20% of the total build cost

e Cost of providing alternative accommodation for residents displaced as a result of a major loss for two or three years -or compensation for loss of rental income if let (Dont forget mortgagees will still expect their loans to be repaid even if being rebuilt following severe subsidence or if - heaven forbid- the premises blew up in a gas explosion)

In other words your valuation has to be on the basis that your insured premises is in that second after the loss nothing but a muddy field and your amount insured covers for everything which would be incurred in reinstating; notwithstanding that well over 99% of losses under a policy of buildings insurance are for relatively small amounts.

The Building Research Establishment (BRE) publish statistical information on the average tender prices of contractors to build various classes of structure but this may not be of a great deal of assistance; you should probably seek the services of a building surveyor for a reinstatement valuation.

As a very rough guide to reinstatement cover multiply each square foot of internal habitable space by 180. Costs for reinstatement will vary widely depending on a variety of factors and you won't ever know the true cost unless you are in the very unfortunate situation of having to go out to tender for a quote to rebuild. But buildings insurance (especially if you have had experience of a massive loss) is really quite inexpensive, in my view, for the cover provided and it would be a great mistake to under-insure. The insurer will increase cover every year from inception in accordance with the statistical increase in cost for typical reinstatement using data supplied from the BRE

[leaseholdanswers]

Surveyors fall into a wide field from general practice investment building land agricultural mining planning and some specialise within those areas, as well as brick counters ( quantity surveyors).

I suggest that you contact RICS.org and ask for a surveyor firm who can do rebuild valuations and provide a report on the building from a property management perspective, so that they can guide you on solutions as much as identifying areas to be addressed.

[anniebea]

Our manging agent has sent us a request to authorise a BCIS Insurance Rebuilding Valuation. We do not own the freehold and the freeholder insures the building. Although I do not have confirmation I think that the managing agent are checking that the sum insured for rebuilding is correct. Im confused if thats the case as I would have thought that the freeholder was leagally obliged to do this and pay for it. How often would you do a revaluation.

The cost of the valuation is £547.25 plus VAT - does that seem a reasonable cost?.

The flats were built about 8 years ago so I guess the cost of rebuilding has gone up

[quarterday]

who is responsible for the cost of the valuation is a moot point and if the freeholder is unsure of what it would cost to rebuild the block from scratch, on the assumption that not even the drains were there he has to get a valuation.
I have heard it said that this is just a cost of being a freeholder but by the same token it is arguable that it is a cost of providing a service, namely the provision of a policy of insurance, neither for insufficient or an excessive sum. Once there is a base figure, the insurers will increase it annually to take account in annual increases in the cost of construction so it ought not to be necessary to revalue for insurance more often than once in ten or a dozen years.

Roughly speaking if you multiply the internal square footage of the accommodation by 180 to 200 you will come to an approximation, in pounds but this is on the assumption that there are no lifts no underground carparks/garages. But a rule of thumb is not very scientific and I think it reasonable to have an insurance revaluation on the service charge no more frequently than as mentioned above.

the cost of the revaluation you mention is for what? A building comprising three flats or thirty? One cant comment without knowing. What I would recommend you do, however, is ask if a cheaper quote can be obtained for a rebuilding valuation and see what happens!

[anniebea]

The property is 14 flats, in two blocks built about 8 years ago.

you said:

and if the freeholder is unsure of what it would cost to rebuild the block from scratch, on the assumption that not even the drains were there he has to get a valuation

Are you saying that the Freedholder should pay for this valuation. He pays the insurance. What I cant understand is why the leaseholders through the managment company should be paying for this valuation.

[jeffrey]

The f/r owner may be entitled to debit, to the service charge budget, any fee payable for an insurance valuation- if the leases so allow.

[anniebea]

The Freeholder and Managment company are separate companies. Seems to me that the Freeolder should be paying for this. It is Freehold Managers (no more to say).

The following paragraph is taken from the lease in respect of insurance.

The lessor’s covenants

To insure the buildings (unless such insurance is vitiated by any act or default of the Management company, the Lessee of the lessees of the Other Flats) and keep the Buildings insure against loss or damage by fire storm or tempest and such other usual and insurable risks normally incorporated in a buildings insurance policy for residential flats ( “the insured Risks”) with a reputable Insurance Company in an amount which shall represent in the opinion of the Lessor the full replacement value of the Buildings plus incidental expenses and architects fees in rebuilding the same which policy may at the discretion of the Lessor be index linked and shall also take out and keep in fore a policy of insurance in and insurance office of repute covering liability of injury to persons on the estate and shall make all payments necessary for this purposed within seven days after the same becomes payable and shall produce to the Lessee on demand the policies of such insurance and the receipt for every such payment.

[jeffrey]

So? Does the service charge's scope not include L's insurance valuation expenses?

[andydd]

My lease doesn't contain any obligation to pay insurance expenses, or valuation/surveyors fees, but it does contains the dreaded "All other expenses incurred in the management of the building", my landlord has argued that this would include any valuation/surveyers costs, and given the outcome of my recent LVT case where the tribunal appeared to interpret this as allowing almost anything I wouldnt be surprised if this point was specifivally argued it would be allowed.

My rebuild value is about £300,000 which seems rather excessive, the building is 2 flats that are worth about £100,000 each max.

It seems if I were to argue the overall costs of insurance i would have to pay for a survey/valuation to obtain the actual rebuild costs.

Andy

[anniebea]

Its freehold managers again.

They have sent out this note to all property manages. I am flabbergasted that they can ask us to pay all these charges when they own the freehold. Surely this is thier costs.
These may be their requirements but surely its down to what is in the lease. I wouldn’t be surprised if the company they have instructed to do this is an offshoot or connected to them in some way.

Comments???

__________________________________________________ _____________________

Re: Property Risk Management & Legislation Compliance
As you are aware, the management of risk for the whole of our portfolio is an essential and integral partof your appointment. We take great pride in ensuring that our properties comply with various legislation and regulations in existence as well as having a better understanding of the potential risks we face as freeholder. Many of these have a direct bearing on our tenants.

In order to satisfy our requirements, I thought it might prove helpful to restate our requirements in this area.

On all our properties, we require the following:
• A full Property Risk survey (every two years)
• Fire Risk Assessment (where not completed and otherwise every two years). Assessments already completed should be suitable and sufficient and have been carried out by a competent person. These should be reviewed at least annually to ensure that appropriate measures are in place to reduce risk (and remain in place), are still appropriate going forward and potentialimprovements recommended at the time of the assessment have been implemented.
• An Asbestos survey (where applicable dependant upon the age of the property). Here again,assessments already completed should have been carried out by a competent person and relevant actions taken to reduce risk where asbestos containing materials have been identified.
• An Insurance rebuilding valuation (where not completed and otherwise every three years)
• A Fixed Electrical Wiring Inspection to be carried out by a competent person every five years.
• A Gas Safety Certificate (where applicable). Here again, assessments already completed should have been carried out by a competent person and relevant actions taken to reduce risk where these have been identified.

[leaseholdanswers]

While it is their responsibility these costs are recoverable through the service charge. That I am afraid is how it works and under the lease you bought clearly spelt out as your solicitor will have explained.

Because you are several homes on top of each other it is hard for you to each take care of your own exterior eg roof foundations and shared services eg drains , so it has to be done between you via the service charge and a third party the landlord is required to do so at your cost.

You are right in that this is an other effort to earn money.

• A full Property Risk survey (every two years?
Yes required by law but how often depends on the outcome of the assessment. NO time limit is set by law
• Fire Risk Assessment As above .
• An Asbestos survey (where applicable dependant upon the age of the property). Here again,assessments already completed should have been carried out by a competent person and relevant actions taken to reduce risk where asbestos containing materials have been identified.
Yes required by law.
• An Insurance rebuilding valuation (where not completed and otherwise every three years) In order to insure, the right value should be used (not market value rebuilding cost). Actually no legal time limit and normally five years with every other year on desktop and brief inspections, and if there are any changes, should be fine.
• A Fixed Electrical Wiring Inspection to be carried out by a competent person every five years. Yes to the common areas.
• A Gas Safety Certificate (where applicable). Unlikely.

They will use a cosy subsiduary so form a residents association go out and get quotes and if the landlords are higher, then go to the LVT and challenge them.

[anniebea]

Should there be something in the lease to say that these are recoverable through a service charge. I have looked through the lease and am unable to find anything that covers this.

[anniebea]

Apolgies if this has gone off at a tangent and includes other stuff in addition to insurance.

In my lease in the lessors covenants it states to pay all existing and future rates assessmnets and outgoings now and hereafter imposed or payabale in respect of the Reserved property.

I assume that the Common areas of the building are part of the reserved property - ie they belong to no lessee then surely any risk assessment in repect of the common areas is the responsibility of the lessor ie freeholder and this clause says they are responsible. Should they also be responsible for the electric test for the electrics that are in the common area.

I agree these companies try it on and often dont read the leases before sending out these letters.

[quarterday]

Anniebea :

You have the use of "the reserved parts" for access and egress from the flat you own and for this reason the lease is drafted in such a way that you and others owning flats bear all the costs of the reserved parts equitably. The reserved parts do cost money to light, clean, insure, possibly heat and it is perfectly reasonable that you pay a share toward that outlay. You are wrong footed to think just because they are reserved to the freeholder that the freeholder should be paying for them. They are reserved to the freeholder so that the freeholder can grant rights to other to use them.

As regards rebuilding revaluations for fire policies, in my view, three yearly is too frequently for the cost of a valuation to be added to the service charge. In general it is in your interest to have a valuation done, albeit more occasionally, perhaps once per decade; and I am of the view that three yearly is unnecessarily frequent.

[leaseholdanswers]

Anniebea :

As regards rebuilding revaluations for fire policies, in my view, three yearly is too frequently for the cost of a valuation to be added to the service charge. In general it is in your interest to have a valuation done, albeit more occasionally, perhaps once per decade; and I am of the view that three yearly is unnecessarily frequent.

Glad to see someone who agrees with me - see post. It seems to be gospel according to the various universities.

[leaseholdanswers]

In my lease in the lessors covenants it states to pay all existing and future rates assessmnets and outgoings now and hereafter imposed or payabale in respect of the Reserved property.

I assume that the Common areas of the building are part of the reserved property - ie they belong to no lessee then surely any risk assessment in repect of the common areas is the responsibility of the lessor ie freeholder and this clause says they are responsible. Should they also be responsible for the electric test for the electrics that are in the common area.



What you have seen is correct, however reading other parts of the lease you will find an obligation to meet these charges, eg tenants covenants to pay service charge, perhaps listed or set out in a further schedule. Sadly you have to read the lease front to back and then again to put all the parts together.

Unfortuantely this is how leasehold property works you look after your flat and pay a share towards the rest that you use/benefit from.

[funkster]

What is the best way to go about assessing rebuild-value for Buildings insurance purposes?

Leaseholders in this block of 4 flats are in the final stages of taking over Freehold by enfranchisement, and I have been trying to get quotes for new Buildings Insurance.

I found out from the Managing Agent the estimated rebuild-value used for Buildings Insurance, which I was told is also the sum insured. Through a broker, I got several quotes from major insurers which are very considerably lower than what we currently pay.

However, when I mentioned the subject to a couple of surveyors (in connection with another matter), they said the rebuild-value/sum assured, and hence the quotes, sounded much too low.

It therefore appears we should get a new, independent assessment of the re-build value so that we do not end up under-insuring.

The two surveyors mentioned could provide this, in conjunction with a report about the general structure of the building (which some leaseholders want : - the other matter I had initially phoned to discuss).


As the OP, I would like to return to my original question as above.

I have now had a professional rebuild valuation done for a fairly modest fee as it was part of a structural survey of the entire building.

This gives the rebuild valuation as 1.65 million, as opposed to 320,000 we are currently insured for by the freeholder, from whom we are trying to separate, so it appears we have been drastically under-insured for many years.

Still, I am a rather taken aback by the size of the valuation. That's not only because it is several times more than our current insurance, but also several times more than the nearest "model" I can find on the BCIS rebuilding cost calculator, which gives a figure of about 500,000. I realize that calculator states it is not intended for blocks of flats; however, the figure is also about a million more than the "rough rule of thumb" of multiplying internal square footage of about 3000 square feet by 200, as recommended by poster Quarterday and also another surveyor I asked.

On the other hand, yet another surveyor I asked about this recommended simply insuring the building for its full market value, supposedly about 2 million.

So I feel rather confused by all this, and since the surveyor didn't show any calculations and I can't discuss it with him till next week, I thought I would just ask here if the figure of 1.65 million as a suitable rebuild-value for a mid-Victorian 6 storey property in central London roughly squares with the experience of others (granted that more details are needed).

[leaseholdanswers]

Well market value has nothing to do with rebuilding costs so ignore that.

The House building table does not take account of simple things like there is 1 or 2 bathrooms and 1 kitchen per apartment rather than the usual 1 per house.

The rate used is variable simply due to quality, to the cost of site clearance and rebuild in a terraced scheme with little or no access is very different to a detached one, nor can it take account of local factors such as the nearby tube line soil make up mature trees and a host of other more technical issues.

Take it up with the surveyor when they return, but in the meantime put the freeholder on notice, and talk to your lender to increase the cover they have short term, just in case there is an incident.

[betty7091]

i live in a block of six flats we are lease holders who all own share of freehold. we have managing agent who tells us it is a legal requirement from the insurance company that we have to do have an insurance revaluation every 3 years, and a health and safety risk assessment is another legal requirement. is this all true or are they just trying to rip us off for other services.
cheers jon

[paulb67]

Hi betty7091

There's no legal requirement to have a rebuild valuation done. It's possible that the insurers have made it a contractual requirement that one is done - very unlikely. However if one hasn't been done for a long time it would be prudent to arrange.

H&S risk assessment is a legal requirement and should especially include Fire and Asbestos risk assessments.

Ask the managing agent to get 3 quotes.

Hope that this helps.

[betty7091]

thanks jon

[leaseholdanswers]

Hi betty7091

There's no legal requirement to have a rebuild valuation done.

H&S risk assessment is a legal requirement and should especially include Fire and Asbestos risk assessments.

Ask the managing agent to get 3 quotes.

Hope that this helps.

Hold that is a reckless mistatement. There are

1: Contractual obligations to insure which if not explicit such as full reinstatement value, are implied.

2: The landlord or person in control has a legal obligation and duty of care to ensure that any obligation is met.

The only way to assess is to have a revaluation.