Buildings Insurance for Listed Property

For mortgage-funded property purchases your lender will arrange a ‘Reinstatement Cost Assessment’ for buildings insurance purposes and specified that cover be placed at that level. But what if your purchase was some time ago, or did not require mortgage finance? How do you know what is an appropriate sum to insure the property for now? Market value does not equate to the value for insurance purposes. Indeed it could easily cost more than the purchase price to rebuild a damaged property.

 

Being underinsured can be very stressful and could leave you with insufficient funds from the insurance company to repair or rebuild your home should a claim be necessary. This is because the insurer will apply ‘averaging’, and only pay out on a proportional basis. For example should your property be insured for 25% less than the insurer deems appropriate, then a claim, of whatever size, is likely to result in a pay-out that is only 75% of the true value of the loss, leaving you to find the remainder, or make do with a lower specification of repair. 

 

For owners of listed buildings, the choice of using cheaper materials or techniques will generally not be available and hence underinsurance can be particularly perilous. The zero rate of VAT for approved works to listed buildings was withdrawn from 1 October 2012, except for a few very limited cases, and since then owners have faced substantial increases to maintenance and alteration costs. However there is also a direct, if not widely appreciated, implication for buildings insurance cover. Prior to the changes, remedial works to a listed building would have been exempt from VAT.  As such, the buildings sum insured for a listed building may not include an allowance for VAT and policyholders could find themselves to be significantly underinsured as a result of this alone. 

 

Serious incidents resulting in structural damage – a major fire for example – will more often than not result in the property requiring demolition and then rebuilt as new. This is because site clearance and re-building will be cheaper than major repairs to an existing building and the cost of a newly constructed dwelling is exempt from VAT. However for listed buildings the conservation officer is unlikely to approve demolition, even when substantially destroyed. The building must instead be repaired and VAT will apply, conservation taking precedence over financial considerations.  The worst case scenario is that owners of listed buildings could be forced to personally part-fund the restoration of a significantly damaged property, or face potential prosecution.

 

Whether your property is listed or not, the consequences of under insurance can be serious. Reliance on automatically-applied annual index linking can also be a mistake, as there is little guarantee that the indices match true costs, and the gap tends to widen as the years pass. A professional Reinstatement Cost Assessment by an experienced Chartered Surveyor will assist you to select the appropriate level of cover for your property. An assessment can be commissioned as part of a condition survey, or as a standalone service for most property types.