Renovators - Your Insurance Questions Answered

When you are trying to stretch a limited budget as far as it will possibly go, allocating several hundred pounds to an insurance policy you may never need can seem difficult to justify; especially if it means sacrificing that nice shower or luxury bath you’ve been hoping for. If things go wrong on site, however, having insurance cover can ward off financial disaster.

Building is an inherently risky business, but fortunately you can protect yourself and your property against almost every eventuality by arranging specialist insurance cover. To keep down the cost of premiums – all of which will attract insurance premium tax at 5% – assess which risks are most relevant to your project and only take out those policies you really need, regardless of what a salesperson may tell you. If you are using a builder, check to see what cover they already have in place to avoid doubling up and paying unnecessary premiums.

Q: When do I need cover in place?

The moment you take ownership of a property for renovation or conversion, you are potentially liable for claims for death or injury on the property from members of the public, even if they are trespassing. It is, therefore, essential to arrange Public Liability cover as soon as the site is purchased — and this means at the point of exchanging contracts, which is when your liability starts.

If the property is to be your own home and you plan to move in straight away and live there during the project, check whether the existing Public Liability cover on the buildings insurance on your existing home can be extended to your new property.

You must also ensure that all of the buildings on your property are covered to protect against accidental or malicious damage. This is especially important for conversion opportunities — in some instances the consent for conversion will be invalidated if the building is damaged beyond reasonable repair. The sum you need to insure is known as the reinstatement value, and this figure should be included as part of your survey.

Once work commences on site you will also need to arrange Contractor’s All Risk Insurance (see panel p.129). The exception is if you are employing a main contractor and they already have such a policy in place. This policy combines Public and Employer’s Liability Insurance with site insurance to protect the works in progress, including plant, tools and materials, from loss through theft, malicious damage, or fire. Cover can also be extended for site caravans and mobile homes, and for works constructing highways access — although not all local authorities will allow this work to be undertaken other than by specialist contractors registered with the New Roads and Street Works Act accreditation scheme.

Q: What about structural cover?

If you are undertaking a conversion to create a new dwelling then you will also need to arrange some form of Structural Defects Liability Insurance. Without such cover it will be impossible to obtain a mortgage and very difficult to sell the property on.

Latent Structural Defects cover protects against the cost of repairing any problems that arise due to defective design, bad site practice or faulty materials. Even though all new building work has to comply with the Building Regulations and will have been inspected by an approved inspector, things can still go wrong and the local authority is not liable for failing to spot problems. Your builder and subcontractors have a duty of care, and many materials will also have guarantees, but obtaining redress can be very difficult.

Structural Defects Liability Insurance, also often referred to as a warranty, is available from several insurers and detail of their cover is available for inspection so you can compare policies. The available policies are all broadly similar, except that the National Housebuilding Council (NHBC) Conversion cover is only available through NHBC-registered builders, whilst the alternatives are available direct to self-builders no matter which building contractor they choose, or whether they are project managing using subcontractors, and/or an element of DIY. The remaining term of a policy can be transferred to subsequent owners, enabling the property to be sold on.

Cover is also available for renovation projects or major extensions — however, it is considered less essential as lenders will not insist on it being in place. A condition of all such policies for conversions and renovation projects is a building report. This is an indepth survey of the building as it stands, together with a measured survey of the existing building and detailed drawings for the construction work.

The cost of cover is based on the contract value, i.e. the cost of the building works, and the level of risk as assessed by the insurer. Typically cover will cost between 1-2% of the contract value.

Although they offer a lesser degree of protection, certificates issued by qualified professionals, such as architects, engineers and surveyors, are also accepted by many lenders as adequate protection against latent structural defects for new dwellings created by conversion. If defects later appear, in order to claim, it is necessary to prove that the problem is due to professional negligence and this can be difficult.

An alternative which can also be applied to extensions, loft conversions etc, is the MasterBond warranty, available through contractors that have chosen to register for the scheme with the Federation of Master Builders (www.findabuilder.co.uk). MasterBond covers work against defects due to faulty workmanship or materials for two years from completion (except for electro-mechanical items which are covered for one year only), and against structural defects for a further eight years. FMB requires the building work to be notified to Building Control, who will inspect the work at stages dependent on the type of project. The benefit of MasterBond passes automatically to new owners and the cost is 1.5% of the contract value, including VAT. Subcontractors’ work can also be covered.

Q: My solicitor has found there is a restrictive covenant on the property. What next?

A restrictive covenant is a legally enforceable deed, which allows the beneficiary – usually the owner of a neighbouring piece of land – to exercise control over the use of other land subject to the covenant. The most common type of restrictive covenant prevents further development of the land, including changes of use, without the consent of the beneficiary. If your land is subject to a restrictive covenant it can limit what you can do with your property, unless you approach it in the right way.

When faced with a property subject to restrictive covenants, the first step is to assess whether or not the covenant remains enforceable. A covenant is always enforceable between the original parties that entered into the deed, but not always by successive owners. Even if a covenant is enforceable, it may be possible to negotiate a relaxation or an amendment with the beneficiary, or to have it amended by the Lands Tribunal. It is also possible to take out insurance against the risk of litigation via a specialist insurer, and this will safeguard against the potential costs.

Restrictive Covenant Insurance Providers: Self-builder.com: 0800 018 7660; Garratts Insurance Brokers: 01772 555576

Q: My property has a defective title. What should I do?

It is not uncommon to purchase a property for renovation or conversion that has not changed hands for many years, and where the property is not, therefore, registered with HM Land Registry and the title deeds are lost, missing, stolen or inadequate. In this instance the title is defective and it is possible that a third party could challenge your ownership, or your rights to easements for access and services etc. Your solicitor should pick such issues up during the conveyancing process and will be able to advise you accordingly. Often all that is necessary is to insure against the risk by taking out specialist Defective Title Insurance. This is a once-only premium that covers all risks until the title becomes absolute, and cover will enable you to sell the property on in the intervening years.

Q: What if my property will be empty?

Insurance for Empty Buildings is a specialist area of the building insurance market because of the increased risk of theft, vandalism and adverse possession, and most standard house insurance underwriters will not offer cover.

Unoccupied property insurers and brokers: Camberford Law: 020 8315 5000; Lawley Insurance Brokers: 01753 537100; Howe Maxstead: 020 8309 1717; Atkinson Smith: 01302 341344; Insurancenet: 0845 365 1264; Property Insurance Centre: 0800 085 3761; Project Builder: 0870 333 3810 www.siteinsurance.net

Q: How do I protect myself against someone injuring themselves?

If anyone injures themselves on your property, even if they are trespassing, you can be subject to a claim for personal injury or other losses and damages. Public Liability Insurance will protect you against such claims with legal cost cover, and will pay out should a claim be successful.

Public Liability Insurers: Self-builder.com: 0800 018 7660; Project Builder: 0870 333 3810 www.siteinsurance.net; DMS Services: 01302 341282 www.proaktive.co.uk; Self-build Zone: 0845 230 9874; Venture Plus (AXA Insurance): 0845 606 1234; BuildStore (BuildCare): 0870 870 9991; NFU Insurance: 0800 316 4661

Q: What if there is a specific risk to neighbouring properties?

JCT Clause 21.2.1 Insurance is required where there is a specific risk to a neighbouring property resulting from your construction work. It is usually put in place because of a stipulation by a consulting engineer, surveyor or architect as part of a JCT contract, to protect you against damage that is not caused by the negligence of your contractor or subcontractors. It is most likely to be required where work involves excavation.

JCT Clause 21.2.1 Insurance Providers: Royal & Sun Alliance: www.royalsunconnect.co.uk; Self-builder.com: 0800 018 7660; Stride: 020 7793 9748 www.stride.co.uk; Ingham Underwriting (ACE Europe): 0845 601 7900

Q: Is there an overall insurance if I'm managing my own project?

Contractors All-Risks Insurance is an allin- one policy that covers against loss or damage in respect of contract works (works in progress); construction plant, equipment and machinery; as well as third-party claims for damage to neighbouring property, or from members of the public or employees or subcontractors, including personal injury claims. Main contractors should have this insurance in place and their cover should start as soon as work commences on site, so if you are using a builder, you will not usually need to arrange cover yourself. If you are project managing the build, using subcontractors and/or DIY, then you will need to get your own policy in place. Cover can also be extended to include caravans and mobile homes on site, and extensions to cover can be added for short-term work such as constructing a new highway access where £5 million of cover is required.

All-Risks Insurance Providers Self-builder.com: 0800 018 7660; Project Builder: 0870 333 3810 www.siteinsurance.net; DMS Services: 01302 341282 www.proaktive.co.uk; Self-build Zone: 0845 230 9874; Venture Plus (AXA Insurance): 0845 606 1234; BuildStore (BuildCare): 0870 870 9991; TradeDirect: 0800 023 0380

Q: What about insurance for specific renovation jobs?

If your renovation or conversion project involves damp-proof treatment to walls or floors, tanking to a cellar or basement, preservative treatment for timber, underpinning or other specialist works, you will need to use a specialist subcontractor who is able to provide an insurance-backed guarantee for their work. Structural Defects Liability insurers will not provide cover for such work and will insist that individual policies are in place from suppliers.

Insurance-Backed Guarantees – Damp- Proofing Work and Timber Treatment: British Wood Preserving and Damp- Proofing Association (BWPDA): 01332 225100 www.bwpda.co.uk; Underpinning Contractors: Association of Specialist Underpinning Contractors: www.asuc.org.uk