Your premises are likely to be your greatest asset and so it’s important that your buildings insurance is set at the correct level, taking into account the basis on which your insurance cover is arranged, usually a reinstatement basis. If you are under-insured, following a loss you run the risk that any payments made will be reduced in-line with the amount you are under-insured by, commonly referred to as condition of average. For example, if a fire or flood causes £3 million of partial damage to your building which is insured for £5 million, but its true value is determined to be £10 million the pay-out will only be £1.5million.
Ensuring your buildings are adequately insured is therefore vital if your insurance policy is going to operate in the way intended following a loss – to allow repair or rebuild of your premises. Your insurance adviser may be able to provide support and guidance, however, you may wish to seek advice from building valuation specialists.
The age, nature of occupation, construction, and location of your premises will all influence its reinstatement cost, along with other factors:
If original building materials e.g. locally sourced stone, are no longer readily available there can be a considerable cost involved in sourcing them. Indeed, some items, such as thatch, may only be seasonally available.
External features, such as relief carving, parapets and finials can be very decorative and the number of tradesmen with the skills to reinstate them is limited. Detailed records of such embellishments should be kept in order that they may be replicated as necessary.
Similarly, internal decoration must be considered including fibrous plaster, wood panelling and decorative staircases. The quality of fixtures and fittings should also be taken into account. Flawless finishes take longer to achieve and cost more.
The pool of people with specialist building skills is limited. Therefore, there is great demand for traditional craftspeople and their services come at a premium. They are also often booked up months in advance.
Access to the site may be limited, either by the road network or by restrictions placed by Local Authorities, perhaps with regard to the timings for deliveries etc. Space to store materials and equipment on site might also be minimal, leading to the need for more creative solutions for storage, such as suspending parking bays or building scaffolding out over the pavement. Some buildings may not have direct access to the rear, so negotiations may need to be held with owners of neighbouring properties. Conversely, more rural locations may have plenty of site storage space, but the time taken to get to the site may be lengthy. Factors such as congestion charges should not be overlooked.
The size, shape and layout of a building will all affect the build costs. The larger a building, the greater the economies of scale that may be achieved; multiple trades can work on the site at any one time. In smaller buildings, often only one trade can work at a time, leading to some delays and downtime whilst awaiting the changeover.
The shape and layout of a building can also add significantly to the costs. It is simpler to construct a building that is of a regular shape, with right angles; much more difficult to build curved walls. The building may have been extended many times in the past; each of these extensions and changes in the direction of the wall will add to the cost. The height of the building will also affect the cost with more materials and scaffolding needed. Deep basements and sub-basements can add significant costs bearing in mind the retaining nature of the walls and the engineering skills required to retain a large quantity of soil.
Reinstating building services can be costly and time consuming. Even relatively simple modern buildings, but with extensive data and building management networks can be surprisingly expensive to put back. Environmentally friendly methods of powering and heating a building can be particularly expensive to install and these costs must be borne in mind when assessing the total cost of rebuilding.
The cost of demolition will need to be included. In the event of a serious fire or other structural damage, where asbestos or other contaminants are present in a building, the whole of the resulting debris is likely to be declared contaminated, and as such will need to be disposed of under licence. This can add a significant amount to the costs. Where the roof and walls contain asbestos, it is possible that the surrounding area will be contaminated in addition to the building's footprint, perhaps necessitating removal and disposal of the top soil. Any remaining structure will also need to be made safe.
Your sum insured should include suitable allowance for architects’, surveyors’, engineers and other specialist contractors’ fees. These can add considerably to the cost, particularly if the building is complex or the site conditions are difficult. Remember you may need more than one professional service.
The situation regarding VAT is very complex and depends on your own VAT status, as well as the nature of the service provided within the building. VAT is always payable on professional fees, demolition costs and debris removal unless you are VAT Registered and can recover such charges. If you are likely to have to pay VAT on the rebuilding of your property, it should also be included in your buildings sum insured.
Whilst the sum insured should be sufficient to put the building back in substantially the same manner as the original, there are occasions where there is unintended betterment. For example, where Regulations require certain features. The owner of a building can be forced to comply with onerous modern requirements whilst reconstructing, including, for example, access for the disabled or the upgrading of fire protection. Often, compliance with these requirements will attract significant additional cost.
Another example would be with regard to Part L of the Building Regulations1 Conservation of Fuel and Power. If your building is of fairly light construction, such as a timber hall or classroom block, it is unlikely that permission would be granted to replace with the same materials, since this would not conform with requirements as set out under Part L. It is likely that a more substantial masonry building would be required. By its nature, this would be more costly, so consideration should be given to a form likely to be approved when selecting your building sum insured.
The longer a project goes on, the greater the cost will be. If the building is listed, the additional time involved in obtaining agreement from the various bodies involved can be considerable. Planning Permission and Listed Building Consent can take some time to approve and there may be significant restrictions and requirements, such as the need to use a particular building material. This can also be true of buildings in Conservation Areas and Areas of Outstanding Natural Beauty.
Don’t only think about the main building. Consider all of the ancillary buildings, outbuildings, tennis courts, swimming pools, walls, and driveways. Your buildings sum insured should reflect the cost of replacing all of these items.
Ecclesiastical has an established in-house team of specialist surveyors trained to deliver insurance building valuations for qualifying customers. Our valuations reflect the factors detailed above and are based on cost information derived from many years of experience in insuring and valuing a wide portfolio of buildings, from the medieval to the modern era. For further information please contact your insurance broker.
1Applicable in England and Wales only, Scotland and Northern Ireland will have similar regulations.