Property Renovation Insurance – getting the right mix

I thought it was worth explaining the different policies in this sector, there are three key areas of insurance for any of your clients who are going to appoint a contractor to carry out major works on their home (or for that matter build them a new one).

1. Latent Defect Insurance (Structural Warranty)
2. Non Negligent JCT 21.2.1 Insurance
3. Renovation/ home works Insurance

These three policies all cover different parts of the build process but all are just as important as each other.

1. Structural Warranty

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Structural warranties are insurance policies that provide the residential home with a 10 year latent defects guarantee in the event of building damage or failure due to build & design inefficiencies . Structural warranty products offer to repair or replace parts of the building that do not perform or function properly or to regulation standards because of a latent defect. Residential warranties are provided to new homes, conversions and major refurbishments

It is now a requirement that all new build residential properties benefit from a 10 year structural warranty recognized by the Council of Mortgage Lenders. In addition all High street lenders and nearly all other providers now insist on a warranty for a property that has been converted or had major refurbishment works carried out.

The Council of Mortgage Lenders hand book states

“If the property has been built or converted within the past ten years, you should make sure that the property has the benefit of a 10 year warranty”

Developers make the common mistake of thinking the requirement is only for new build where in fact the lenders insist on warranty being in place for any conversion or refurbishment where any structural work is taking place. In fact it has been known for lenders to refuse finance even on a conversion where no structural work has taken place. The rule of thumb now is if you are carrying out works that will convert a building from one type of use to residential or are carrying out major refurbishment works to a residential unit then you need a 10 year building warranty.

2 .Non Negligent JCT 21.2.1 Insurance

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Non Negligent covers claims or proceedings that arise due to ‘non-negligent’ damage to adjacent property whilst undertaking a building contract and last up to 6 years after completion of the works. The policy is usually purchased by the Contractor on behalf of the Employer and cover is provided to protect against the Employers liability for loss, proceedings or claims that could potentially be sustained due to non-negligent damage to property whilst carrying out a contract.

The origin of this cover arises from a court case in 1958. A contractor was responsible in the contract for his own negligence. Damage by vibration was caused to an adjoining property. The contractor was found to not have been negligent but the principal was found strictly liable in nuisance. They had been assuming the contractor’s insurance would respond and had no cover of their own, so had to meet the claim themselves. Non-negligence insurance was then designed to fill the gap.

Public Liability insurance will only provide cover to third party property where negligence can be proved. If the work that is carried out causes damage to a neighboring property your client can find themselves liable.

Areas covered

  • Subsidence
  • Heave
  • Landslip
  • Collapse
  • Vibration
  • Lowering of Ground Water
  • Weakening or Removal of Support

The period of cover is the duration or the works to the expiry plus the maintenance period

This cover will not cover the negligence of the contractor. For this you will need Public Liability Insurance, see below.

Non-negligence Insurance is not always required, if for example the project is on a green field site. However in suburban or built-up areas where piling, excavation, underpinning or basement works are being undertaken, it must be seriously considered in view of the liability to which the client is exposed.

3. Renovation / Home works Insurance

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Renovation insurance provides cover for the existing building as well as the new works being added. Public Liability is included with options to include Contents, Hand Tools, Own machinery, Plant Hire and Legal Expenses.

The client can convert the policy to Household if they finish the work before the policy expires.

Benefits of Renovation Insurance

The Client takes responsibility for both Buildings & Contract Works

Provides cover for the unit whilst unoccupied

The client retains full control of the insurances and does not need to rely on the insurances of the contractor (ensuring quality of cover, payment of premiums, that there are no exclusions or warranties which could result in the avoidance of a claim).

The client enjoys ‘all risks’ cover for the building and the works and there are no gaps in cover. If the contractor is allowed to insure the works, then the renovator has to source ‘unoccupied buildings in the course of renovation’ insurance. The cover provided under such a policy is much more limited and will almost certainly exclude damage to the building caused by the contractor.

There is only one insurer, avoiding frustrating and costly arguments between insurers as to who is responsible for a loss. The claim process is much more streamlined. The client won’t have to try and wangle a settlement from the contractor’s liability/ contract works insurers if he damages the building or, for example, there is a theft of materials.

As a leading Broker in this Sector London Belgravia can provide all three of these policies in one simple transaction for your client. We search the whole market to find the best price and breadth of cover. We have an in-depth knowledge of the property sector so we will always give you the best advice of the insurance policies needed for your renovation project.

If you are interested in finding out more please contact Giles Fallan, Managing Director, London Belgravia Brokers Ltd +44 (0)203 701 0420 or email gf@lbb.london