Homeowners, management companies and managing agents of any type of property have the responsibility for ensuring that their property carries the correct level of insurance cover. This applies for new build and period properties, blocks of apartments and flats.
Getting a Buildings Reinstatement Valuation will ensure you only pay for the level of insurance needed to rebuild your property. It does not automatically mean your premiums will increase, and could even save you money if you’ve been over-insured in the past.
Correctly valuing your building for insurance purposes
Whatever type of building you own or manage, it’s important that the property is insured for the full cost of rebuilding it over the entire lifetime of your policy. An incorrect insurance valuation can result in a serious financial loss.
Your insurance protection may not cover all of your repair costs and could leave you substantially out of pocket. Insurers could refuse to pay a claim in full if the ‘Buildings Declared Value’ is incorrect.
A correct valuation is just as important in the case of buildings where there are multiple flats. Correctly assessing the rebuild costs of a block of flats is complex and you should always seek expert advice. Insurers require a block of flats to be insured for an amount equivalent to the combined rebuild cost.
The total rebuild cost of a building can be very different to the ‘market value’ of the building or, in the case of a block of flats, on the combined ‘market value’. This will be referred to on your policy documents as ‘the buildings sum insured’ or the ‘buildings declared value’.
Why your buildings insurance claim could be reduced
The insurer could reduce your claim in proportion to any under-insurance of the building. For instance, only 50% of your claim might be paid if the building is valued at 50% of the correct value.
Most insurance policies will allow for the Buildings Declared Value to increase over time, but this is only helpful if the policy is based on an accurate valuation. The buildings valuation should be carried out by a Chartered Surveyor with experience of insurance valuations.
To ensure you maintain the full insurance cover needed, the valuation should be updated approximately every three to five years but this depends upon how the insurers index-link the sum. The actual cost of rebuilding the property can vary on a regional basis so, over time, the rebuild value will vary from the building’s true valuation.
What is the Buildings Declared Value?
These are some of the points that need to be considered to arrive at the correct figure.
When you take out or renew a policy, you are usually required to provide a Buildings Declared Value. This value is the rebuilding cost at the date of inception or renewal of the policy, without providing for future inflation. The insurer will usually calculate an allowance for future inflation during the period of the insurance and during any rebuilding period.
The insurance policy will cover an insured sum equal to the Buildings Declared Value, plus this percentage. Whilst the percentage uplift to cover inflation is a protection for you against the future, you are still at risk if the original declared value is incorrect.
Additional considerations
The policy wording can vary between insurers, but there are some additional rebuilding costs that should be considered in addition to the main structure of the building. Examples of these are:
- Leaseholder improvements to their own flats
- Communal contents
- Outbuildings including garages, bin sheds, bicycle parks
- Underground pipes and sewers for which you are responsible
- Roads, paths and landscaping
It is necessary to allow for the cost of removing any debris, and provide for additional statutory requirements and the fees of architects, surveyors and engineers.
New buildings are not generally subject to VAT but repairs will be, so VAT should be included in the Buildings Declared Valuation.
What happens if I am under-insured?
A Buildings Declared Valuation calculates the cost of rebuilding the building. So, if the sum insured is not enough to pay for the rebuild you, and any fellow leaseholders in the event of a block of apartments, would be liable to pay the shortfall from your own funds. If you are a director of a Residents’ Management Company or Right to Manage Company, you are also likely to be liable for any inadequacies in the sum insured.
Who should get a Buildings Reinstatement Valuation?
Buildings Reinstatement Valuations or replacement buildings insurance valuations of period property, blocks of apartments and flats are carried out for private clients and for management companies and managing agents.
An accurate buildings reinstatement valuation or insurance valuation can be incorporated into a building survey for a property purchaser. Individual requirements should be discussed with the Chartered Surveyor you instruct to assist you.
If you wish to speak to a Chartered Surveyor, do not hesitate to contact RSAM Chartered Surveyors or PropertySurveying.co.uk to speak to our experienced surveyors, who can provide Buildings Reinstatement Valuations for buildings insurance purposes on all types of residential and commercial property across England and Wales.