Reinstatement costs reviewed.
WHILE the economy has been on a journey through the global downturn, it appears that a glimmer of light has sparked an increase in orders and a careful return to the market for investors and developers.
The property industry has seen a marked change in business costs across the board from construction costs, lack of rental growth and poor commercial sales through to the 2013 antecedent date for business rates being postponed - all of which have had impact of the sustainability of long-term growth.
An area which is particularly important to many property professionals, owners and occupiers is the cost of insurance cover for reinstatement of the property in the event that a specified risk triggers a claim. The requirement for a Reinstatement Cost Assessment (RCA) of a commercial building for insurance purposes is not a statutory requirement, nor is it regulated under the Financial Services Authority (FSA) requirements. Providing advice on insurance policies is however a regulated activity requiring specialist knowledge and compliance with the FSA. An RCA is however a valuable way of ensuring that your property asset is properly insured in the event that an insurance claim is made for a specified risk. There are a variety of reasons why a property will require an updated review of the reinstatement costs, for example, if a property has not been valued for any purpose over the last three years or if the property has been extended, has had substantial alterations or refurbishment over the actual value of the property for which it is insured.
There is an inherent risk that a property asset could be under insured or over insured. A property which is under insured will risk loss in the event of a claim and could result in the insured having to contribute a substantial sum to cover the short fall of the reinstatement costs. A property which is over insured will result in over payment of insurance premiums, which may be substantial over a prolonged period. Either consequence of inappropriate insurance cover could have an enormous impact on the business with the responsibility for the sum insured resting with the insured party.
A reinstatement cost assessment is generally undertaken by a qualified surveyor and aims to ensure that the correct information is obtained regarding the rebuild value of the property. A full review is required in order to provide a true reflection of the rebuild costs including other associated costs such as demolition, professional fees, statutory costs including planning and building control costs are included on a day-one basis.
An understanding of the building construction and material considerations will vary from property to property as each building differs in size and complexity. The use of Building Cost Information Services to provide accurate rebuilding costs should be undertaken periodically with a survey of the property to ascertain material changes. An annual desktop review of the property insurance should be considered to amend any inflation cost impacts on the insured sum.
Receiving the correct advice on a regular basis is prudent. Instructing a qualified surveyor to provide professional review of the reinstatement costs will assist landlords and tenants in reducing their asset risk and business liabilities. Dunlop Heywood has a team of qualified building surveyors to offer advice on your specific requirements.
Matthew Bissett, Chairman (Non-Executive), Dunlop Heywood