Just a few months ago, I came across a developer who was, to say the very least, down in the dumps. Let’s call him Alan.
At first glance, Alan had nothing to be miserable about. He’d just completed a development of high end apartments and was taking them to market. With property prices continuing to accelerate like Lewis Hamilton from the pits, surely he should have had a smile on his face that stretched from ear to ear. Well he didn’t. The properties weren’t selling; he’d made a critical error and not purchased Latent Defects insurance (LDI). His prospective purchasers were unable to secure a mortgage on the properties, leaving them unsellable.
It led me to think that perhaps not everyone is aware of LDI and why it is such a fundamentally important part of the property process. So, I thought I’d better share a brief overview of what it is.
LDI is a type of insurance that provides cover for the cost of remedying and rectifying damage arising from faults in design, construction, installation, workmanship, materials and overall supervision. It also normally covers structural defects such as subsidence landslip or heave, or the ingress (that’s getting in to you and I) of water. Sounds important right?
But here’s the real kicker: The Council of Mortgage Lenders now insists on a 10-year LDI policy before lending any money on newly built residential properties. So, if you don’t have one, you are left up a certain creak, without a paddle.
As you would expect, LDI is suitable for developers, property owners, contractors and private finance initiatives and can also be purchased for completed renovation projects. It’s first party cover, which means there’s no reliance on suing any professional before receiving a pay-out. The insurance company pays and then settles with the relevant professional further down the line. LDI should be sourced prior to construction starting, and the policy should run between 10 and 12 years from the date of practical completion.
For further information please get in touch!
Insuring your freehold property
If you are acquiring – or considering acquiring – the freehold of your building, you will know that the process requires a great deal of planning and that there are many legal and technical issues to consider.
Once formed, your new freehold property company will have full responsibility for the management of your building and this includes insurance. It’s something which many people overlook.
Directors of residents associations have, broadly speaking, two options when considering how to insure the property they are responsible for. There is the non-advised route, such as buying your policy direct from the internet with no professional help, or the advised route where you use a broker such as us to present to you a number of suitable options.
Know your sums
A key reason for pursuing an advised route is that you need to know that the limits of the sums that you’re trying to insure for are adequate, so that the policy will pay out the right amount when you make a claim.
We recently took on a new client who had not had their block of flats valued for three years. On their previous year’s policy it was valued at £1m but on our recommendation the owners revalued the property and it transpired that it was valued at £2m.
At the time the residents association had an average clause in place, which meant that any claim against the property would be reduced by the proportion by which they were underinsured. As the property had been valued at half of its current worth, it would have meant the value of any claim they made would also have been halved. Without us there to advise them, it could have had serious ramifications.
Specialist freehold property covers
There are also some specific covers which are particularly suitable for residents associations – features which you might struggle to find out about without the assistance of a broker who is expert in this field.
Changes brought about by the Insurance Act 2015 placed extra onus on brokers when providing information to insurers about the risks their clients face. This gives us an opportunity to create better value by ensuring that the policy is at less risk of a challenge from the insurer if a claim happens. It’s just one more reason why we would recommend the advised route as being the option that residents associations take when they are looking to insure themselves.
Residents associations can find themselves in trouble if they are underinsured and we would encourage residents to speak to a broker who understands the nature of a risk in its totality and will look to ensure that you’ve got the right level of cover.
The right cover. The right limits.
It’s important to ensure you have the rights cover for your freehold property. So having a relationship with a broker with access to a wide range of products offering economies of scale, who understands your requirements and can make sure claims are managed quickly and effectively is, in our view, invaluable.
For a buildings insurance quote please call us on 0207 691 2409 or email [email protected]