Need renovation insurance advice for your upcoming project? Contact us to be put in touch with a specialist broker.
Leasehold renovations are one of the biggest problems for brokers in the HNW market. The extra layer of complexity they bring causes doubt and anxiety amongst brokers as they grapple with what to advise.
I’ll cover two scenarios to help bring clarity:
Leaseholds in a smaller existing structure
If the existing structure is owned by a limited company, established by the leaseholders to deal with all property matters and isn’t of a rebuild of larger than £3,000,000, then the best option is likely to be that the leaseholder undertaking the works insures the existing structure as part of a renovation package. The steps to take are as follows:
- Advocate the use of JCT joint names insurance by the employer for the works, structure and POL/party wall liabilities, if applicable.
- Cancel or suspend the existing structure property insurance.
- Remember to increase the limits for alternative accommodation/loss of rent to cover the needs of all the leaseholders.
- Note the freeholding company as well as the leaseholders as joint insured with the contractor on the policy.
Leaseholds in large existing structures
If the existing structure is very large and insured on a block policy, it is unlikely to be possible or economic to insure it on behalf of the employer and use a joint names JCT advocating that method of insurance.
In this situation you should consider doing the following:
- Find out what the freeholder, management company and the residents association contact details are.
- Request a copy of the freehold buildings insurance schedule and policy wording.
- Obtain a copy of the lease and any addendum that has been granted to your client to undertake works.
- Request a copy of the residents association memorandums and articles.
When you have these things you can either ask us to help you formulate your advice, or do the following:
- Check that the existing structure block policy insurers are comfortable with the works being proposed by your client (their leaseholder) without amended terms.
- Check the lease and any addendums to it to make sure that they grant your client the right to undertake the works and don’t specify any further indemnities, though it is likely they will.
- Check what the residents association memorandums and articles says about works in addition to the lease.
- If joint names is still possible, make the contractor joint insured on the freeholders policy and insure the works on a works only basis together with POL. Use JCT Minor Works 5.4b or JCT Standard/Intermediate 6.7C but making the freeholder responsible for insuring the existing structure rather than the employer. You should leave the employer responsible for the insurance of the works in the joint names with the contractor. Remember your client’s POL.
- If joint names is not possible on the freeholder’s block insurance policy, then use JCT Intermediate clause 6.7b which makes the employer responsible for the works in joint names with the contractor.
- Make sure that the contractor has a PL indemnity limit commensurate with an EML resulting from the works they are undertaking.
- Consider, very strongly, advising your client to employ a project manager to ensure that the contractor (and their sub-contractors) comply with the terms of their liability insurance, because ultimately your client is likely to be responsible for all damage under the terms of the lease.
It is a complex area so please don’t hesitate to ask if you need advice, it’s what we are here for.