An escrow is essentially a holding tank for money that insurance providers request to cover the value of any defects that may arise in the initial 2 years of cover. This money-holding arrangement is purely to guarantee there are sufficient funds to pay out for any defects in the event the developer/contactor is not around to honour the 2 year defect period.
Insurer’s ask for a bond or escrow if the project is high risk or if the developer/contractor does not fit the correct credit profile. This happens more frequently as many developers now use special purpose vehicles.
Insurers qualify the following as ‘High-risk’:
- Conversions. E.g.; Agricultural buildings into habitable dwellings.
- Businesses with a poor credit score.
- Contaminated/unsteady land.
- Households near large trees (roots causing disruption)
At Buildsafe, we will look to find a provider that suits your needs and will not require a bond/escrow. This will ease your cash flow upon completion and ensure no money is held for 2 years and 9 months as most insurers request.
As the largest specialist broker in the insurance market, we are well positioned to leverage and finalise more favourable terms. We know the criteria of each insurer and the providers that will not require a bond/escrow.
Each project is unique and every developer’s situation is different. In our view, it is not the case that one is fundamentally better or worse than the other. Rather it depends on your needs and the terms that will suit you and your project best.