Choosing and Implementing Building Warranties / Insurance

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24 February, 2021

Building insurance / warranties are an essential consideration for any development. There are a variety of providers available, all with their own products and add-ons which should be considered to ensure you choose a policy which suits your development's needs. It is important to have discussions with your Developer / Contractor at the early stages of the development to consider these needs and agree the process and responsibilities going forward. Most importantly, we would suggest that you discuss what products you need in place with your legal and insurance teams from the outset of the matter, and make practical, legal arrangements which will ensure the products are established in the most streamline and efficient manner.

Which type of policy?

There are a variety of providers, all with their own products and product names. For social / affordable housing developments, there are specific products which specify that they protect landlords of newly built or newly converted homes which are to be rented out or built for shared ownership disposals in the private, affordable or social housing sectors.

You may wish to purchase more than one insurance product if particular elements of your development are not covered. For example, some providers have machinery specific policies which could cover damage to mechanical and electrical services, these are not always covered in standard policies and can be significant, particularly in areas of communal facilities which fall into this category, such as a lift in an apartment block.

You should approach your solicitor at the very start of your development process so that they can assist you in this and explain procedural and practical considerations to aid and support your negotiations.

When should cover start?

Most policies begin on completion of the development, but the involvement of the provider can start on commencement. Practical Completion is often when an approved inspector confirms the development complies. It is ideal to have already discussed and agreed the chosen policies with your Developer / Contractor before the development completes so that the cover can start without delay - especially if you are selling the units yourself off-plan.

Some insurance providers sell pre-completion cover which can give protection from before the development is built. Care should be taken when considering this type of product as the circumstances in which they apply can be very particular. For example, some pre-completion building insurance only applies if, due to your own insolvency or fraud, construction was unable to begin or complete.

Some insurance providers sell retrospective / completed property products which can be bought within 10 years of the property being built, converted or undergone major refurbishment. It generally covers against damage caused by any defects in the design, construction work, materials, and components of the structure. This is suitable for properties which did not have arrangements in place prior to completion of the build. This type of policy / warranty is generally more expensive than the pre-completion options because of the increased risk for the provider not having been involved in inspections during construction. It is also much more difficult to obtain and requires more administrative steps such as a full plan of the area, specification checks and a survey of the property before it can be obtained. It does however help out with those schemes where perhaps you step in to acquire a site towards the end of development which has not had cover arranged.

Arranging building insurance / warranties for your development before completion of the build will save you time and money. Your solicitor can help you plan for this and incorporate the arrangements into your development's legal documents. We discuss this in more detail below.

Bolt-ons

You should be aware that some insurance providers offer 'bolt-ons' which can be added to your chosen building insurance policies at an additional cost.

You should take care to assess the available bolt-ons and whether they would be appropriate for your site. They can include things like:

  • Pre-completion cover in the event of contractor insolvency before practical completion is available
  • Cover for professional fees incurred should a valid claim arise over whether the development has met the required building standards can also be added to your policy
  • Extra time on to the total warranty and insurance period

Discussions with both your Developer / Contractor and legal and insurance teams should be held to help you assess whether your project requires the extra protection a bolt-on can offer.

Practical steps

Deciding what policy cover to choose and arranging who will be responsible for the practical steps required to activate the policies needs to be discussed with your Developer / Contractor and your legal and insurance team. We suggest discussions take place at the beginning of the development (where possible) so as to not cause delay in the latter stages, when the Developer / Contractor has perhaps completed their work and withdrawn from the development, leaving the onus on you to deal with the practicalities. Of course, for new-build properties the provision of such policies is a requirement of lenders generally in the entire housing sector - hence the importance. Effectively, without such the properties mortgagability and therefore saleability is diminished before you even start.

An example of these practical elements is agreeing arrangements for following the insurance provider's set process to begin, activate or arrange the policy cover. Each insurance provider has their own internal processes and procedures such as portals, activation codes or notification processes which need to be followed. It is essential these processes are discussed at the outset of the development and someone is nominated to be responsible for seeing them through e.g. the Developer, the Registered Provider, or your legal team. If this is not prearranged, the pertinent information to begin a policy (which is often time critical), such as the policy number and activation codes, may not be provided by the Developer / Contractor or provided to the wrong contact within your organisation or they may provide them but you may not have prior experience activating the polices, causing delay. Of course with turn-key development structures this process is considered and documented in some detail but where you employ Contractors separately we can aid discussions and help agree the process as part of the site set-up arrangements if this has not been discussed beforehand - another positive in starting the site set-up process early on.

To avoid delays and ensure efficiency, some practical tips include:

  • Host meetings with your Developer and legal team discussing the available building insurance providers, products and the needs of the development
  • Incorporate activation codes and policy numbers into the handover requirements
  • Specify who is responsible for specific practical tasks e.g. activating policies, signing up to the insurance provider's portal, paying for the policy
  • Incorporate your wishes regarding the building insurance policies, procedure and responsibilities from the outset in your Heads of Terms - laying out your expectations at the start will also help the Developer / Contractor factor in these costs
  • Of course, a number of our clients acquire plots under s106 Agreements where such insurance / warranties have already started. Obtaining the detail early-on in terms of what cover you expect is important especially if you require bolt-ons. The earlier you get these in place, the better.

Establishing appropriate building insurance cover is essential for any new build development yet there are a number of products available. We hope this provides some assistance to you and your developments and please do get in contact should you require advice regarding your development proposals. Whilst we are not insurance brokers, and so the necessary elements should be discussed with your insurance team in terms of suitability for your needs, our experience of development in the housing sector and ensuring the obligation to provide this protection is accepted by the Developer / Contractor is something which we can assist with.

For more information contact Cassine Bering in our Housing & Regeneration department via email or phone on 01772220256. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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