11:09 AM, 10th August 2015, About 6 years ago 9
One of my properties is a flat in a large converted detached house in Dewsbury, W. Yorks. I also happen to be the MD of the ‘Right-To-Manage’ company that manages maintenance, landscaping and buildings insurance for the entire block hence I send requests for service charges to the other flat owners.
I recently received a letter from the company representing the freeholder requesting a copy of the latest valuation for the apartment block to ensure their ‘interest’ is adequately insured. So far I have declared a reinstatement value based on an estimate of the market value of all 10 properties added together which is equivalent to just over £0.5M.
I am currently in the process of getting a RICS valuation done to satisfy this request from the freeholder – my fear is that this could end up being well in excess of £0.5M thereby meaning the apartment block is underinsured unless we pay a significantly higher premium which would be unsustainable and wouldn’t enable us to carry out general maintenance and safety related checks, etc. A builder has also attended the block and gave a rebuilding estimate of £1.5M !! His justification for this was that the building would need to be rebuilt in stone in keeping with the local area.
1) Naturally there is a limit to how I move forward with this until the RICS valuation is complete, however I wondered if any other members have experience of this scenario ?
2) I find it bizarre that it could cost say 2-3 times more to rebuild a property in relation to its market value – what insurer would agree to pay out £1.5M for an apartment block in the event it was destroyed (e.g. fire) if the block only had a market value of £0.5M and even if the higher premium was paid to reflect the higher value ?
3) The valuation and the reinstatement value may not be one and the same – for example would the RICS valuation reflect market value or what it would actually cost to rebuild the property ?
Supposing the worst case scenario occurred and the valuation came back at say £1-1.5 M, I guess the options available are :
1) Declare to our insurers that the reinstatement value was underestimated and therefore pay the higher premium to reflect this – unsustainable unless the service charge was significantly increased. (Note so far I’ve absorbed the cost of the insurance into the service charge).
2) Continue with the same premium but accept that if the building was destroyed then myself/the other flat owners would be liable in stumping up for the shortfall since the building is underinsured.
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