Don't underestimate reinstatement costs

It is well documented that construction costs are on the up, with some markets seeing prices increase by as much as 10 per cent per annum. This in turn has had significant implications for property insurance values in the UK.

When it comes to reinstatement costs (the amount your building would cost to rebuild from scratch) your insurance policy should not be a reflection of the market value of your property but an accurate assessment of how much it would cost to rebuild using the exact same materials, to the same design, including all professional fees.

If your insurance only covers the former and the worst case scenario happens and your building suffers total destruction, it is likely that you will end up under-insured and out of pocket. For this reason, ensuring that a property is adequately covered is essential in order to provide protection to both landlords and tenants.

This is the case with any building, but is particularly true of listed and period properties. If, for example, a 'graded' historic property were to be razed to the ground, its listed status would mean a requirement to restore it to its exact likeness. This, unsurprisingly, would involve more than your average construction job.

Restoring listed buildings often requires longer design and approval times with input from conservationists and consultants who specialise in this type of build, resulting in higher professional fees. An innovative approach is needed to ensure the exact character and features of the property are replicated when reinstating it to its original form. As a result, the costs incurred can be particularly high in comparison with a more modern building, due to the type of materials and skilled labour required to reinstate a historic property.

Why then is standard insurance not enough? If you have a policy that covers the market value of your property, it does not take into consideration the cost of construction. While your building may be worth £4 million, it may cost £6 million to rebuild it, resulting in a considerable shortfall.

Just as market values fluctuate, so too does the cost of construction. This is why we advise undertaking a full reinstatement assessment at least every five years to ensure you are adequately covered and a yearly informal overview to keep in line with inflation.

Nobody thinks it will happen to them, but with more than £4.7 million paid out every day in claims for commercial property, it is far better to be safe than sorry.

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