ISSUE 1 2015 Published by Thomas Carroll UK Broker of the Decade*
Insurance News for Property Owners and Professional Advisers
Vacant properties How to fill the insurance gap
‘Lender interests’
How they can affect property deals
The rise and rise of legal indemnity insurance
Contaminated land Avoid being swamped
‘E’ rating deadline is looming up fast for landlords
PROPERTIES How to fill the insurance gap
The significant rise of vacant properties driven by the deep recession has challenged property owners and lenders - with insurers restricting cover, driving up premiums and imposing strict security measures. This has led to a number of challenges for the property sector, including increased cost of insurance cover required to satisfy mortgage covenants, the cost of complying with insurers’ security terms, with frequent inspection requirements, and the potential of uninsured damage impact on owners’ balance sheets.
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Whilst the property market is now in growth mode, many properties that have suffered void periods during the recession require upgrading; and mothballed development sites are once again under construction.
Property Matters
What you need to do Insurers require notification of an ‘alteration of risk’ and this can include the property becoming void, or undergoing renovation and refurbishment. We have seen a dramatic increase in the number of insurance enquiries for protection during property upgrades, covering the existing structure and project-specific contract works. In response to this, Thomas Carroll has developed a number of property insurance schemes providing cover for clients’ properties that are specified by insurers as either short-term or long-term void.
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We review automatic cover restrictions that often apply, as well as security & inspection warranties that can cause breaches in mortgage covenants and lender requirements. We also have access to several security and surveillance organisations and we can negotiate significant discounts on charges for property monitoring and inspection: often a requirement of the property insurer where recording of visits is mandatory.
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How ‘lender interests’ can affect property deals To protect their financial exposures, many lenders are requiring their interest to be noted on their clients’ insurance policies.
This lender requirement can be in the form of requesting lenders to arrange ‘joint insured’ policies and imposing ‘loss payee’ clauses on their property clients. Such conditions are not readily available in the market and must be agreed with each insurer on your property portfolio. A number of insurers are not willing to offer such clauses and extensions to policies, often leading to an impasse between lender and client. If insurers won’t agree to the clauses, it is likely that the transaction will be aborted. We have experience of working with solicitors, lenders and property investors to achieve the right outcomes, and allow the deal to complete, which is particularly important during a property re-finance negotiation or a project development/drawdown facility.
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Property Matters
Contamination problems caused by previous tenant occupiers is a real and pressing issue. Real estate professionals are no doubt aware of ‘selling with information’ or ‘agreements on liabilities’, as per Part 2A of the Environmental Protection Act 1990. The cost of de-risking the sites is a crucial consideration in any property transaction. Substantial savings have been achieved by avoiding the need for remediation, minimising the clean-up costs and achieving the lowest value for the residual risk.
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Thomas Carroll works with a cross section of property professionals to provide a complete solution to property sector problems and challenges. Our panel of insurers offer legal indemnity based contaminated land cover or full blown environmental liability solutions. We also have access to independent remediation specialists to help our clients reduce their environmental exposures.
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For any type of property disposal, acquisition, or development project, the smallest issue can delay progress or even stop the transaction altogether. Due to these delays and transaction difficulties, the use of legal indemnity insurance has increased dramatically over recent years.
appetites, is a critical factor in delivering the right cover to you – types of policy, levels of cover and premiums can be significantly different.
Legal indemnity policies can range from the simple to the complex and can cover a whole array of risks such as title defects, breach of covenant, good leasehold and right of light.
We operate a dedicated division – Thomas Carroll Legal Indemnities – which help property sector clients and real estate law firms throughout the UK with all manner of legal indemnity issues
Real estate investors, property developers and their legal representatives are looking for ways to facilitate transactions, whilst providing assurance to the lenders that their interests are secure.
This allows purchasers to understand the risk and create an insurance solution to best meet the individual requirements of the project.
Many don’t look for the optimum solutions available in the market, as they would for their traditional insurance cover. Having a risk partner who can understand the driver behind the transaction, and the various insurer
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Cover for issues such as delayed completion costs, loss of profits, alternative accommodation and other scenarios can be written into policies to further mitigate financial risks. Contact us for our specialist legal indemnity expertise.
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A B C D E F G The April 2018 deadline is fast approaching when the Department of Energy and Climate Change will require commercial and residential rental properties to achieve an ‘E’ rating or above.
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‘E’ rating deadline is looming up fast for landlords Properties that fall below this rating cannot be let until they are made more energy efficient. The Consumer Insurance Act requires insurers to ask for information they deem necessary to assess the risk being referred to them. They will want to know the current energy performance of property, and any plans to remedy the situation should a rating fall below the minimum ‘E’ category.
Property Matters
Properties that fall below cannot be let until they are made more energy efficient.
The insurer’s option has always been to reinstate, repair or replace property following insured damage and a property does not currently need to be energy efficient when rebuilt (other than to comply with Building Regulations).
Not all insurers will deal with such ‘green issues’ during the reinstatement process following a loss. Thomas Carroll can advise you on your requirements and can ensure that cover is tailored to meet your needs under the Energy Act 2012.
Owners and lenders need to be aware of the potential shortfall in their insurance cover - the insurer’s obligations to reinstate ‘like for like’ may still result in a building not complying with the 2018 minimum requirements. 9
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Thomas Carroll providing property risk solutions As specialists in providing insurance and related services to the property sector, Thomas Carroll constantly monitors changing market conditions, legislation and the insurance market to provide our clients with effective property risk solutions.
Our services cover:
•• Arranging standard
•• Legal indemnity
•• Property owners
•• Technical risk support •• Investment and wealth management solutions •• Due diligence
and non-standard property insurance programmes
risk management
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solutions
•• In house property
major loss expertise
insurance audits
Property Matters
Contact Our Experts To talk to us about the potential issues and risks, and the solutions available, please contact your Thomas Carroll Account Executive or our dedicated teams:
Gareth Cotty ACII Director t
029 2085 5240
e
gareth.cotty@thomas-carroll.co.uk
Property risk matters Mick Learoyd FCII PgDip MM MIRM
Jack Lane BSc (Hons) Cert CII
Head of Property
Development Broker
t
029 2085 3750
t
029 2085 3756
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michael.learoyd@thomas-carroll.co.uk
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jack.lane@thomas-carroll.co.uk
Legal indemnities Louise Jones LLB (Hons) Dip CII
Cerith Bevan LLB (Hons) Cert CII
Development Executive
Development Broker
t
029 2085 8602
t
029 2085 3763
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louise.jones@thomas-carroll.co.uk
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cerith.bevan@thomas-carroll.co.uk
Thomas, Carroll (Brokers) Ltd is authorised and regulated by the Financial Conduct Authority 11
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