Your broker for real estate insurance and professional indemnity
Call us now: LONDON : 020 7734 3346 BRISTOL : 0117 387 8880

Arlington
News & Blog

UK commercial property values fall

Commercial property values dropped in September but that doesn’t affect the rebuilding cost of a property.

You may have seen recently in the press that according to the latest CBRE Monthly Index capital values across UK commercial property fell -0.4% in September 2019, and rental values and total returns were flat. 

Any correction in real estate prices caused by poor performance and the sluggish nature of the economy shouldn’t lead you to believe that your property building reinstatement cost is unlikely to have gone up.

In the third quarter of 2019, UK commercial property capital values decreased -0.9% overall, the fourth successive negative quarter and the weakest of 2019 so far. 

For example currently Index-linking is hovering between 2.5% – 4.5% in both the residential and commercial sectors.

A building’s market value is not relevant for insurance purposes and its use for building sum insured is a frequent source of underinsurance.

What is underinsurance
Property insurance policy wordings typically include a ‘condition of average’ clause. When underinsurance is present, this condition enables claims settlements to still be made under the policy but reduced in proportion to the level of underinsurance.
e.g. if a policyholder undervalues their total buildings value by 50%, and therefore only pays 50% of the premium that should have been due, they can only expect to receive 50% of a buildings claim’s total value.

It is estimated that around 80% of commercial properties could be underinsured!

What to consider when setting the value
The amount of money it will cost to rebuild, or reinstate, a property depends on such factors as its construction, style, quality, condition and location, as well as considerations such as building regulations and the cost of labour. In some parts of the country, and with certain types of property it can be that the market value is only a very small percentage of a building’s rebuild cost.
Buildings sums insured need to reflect the full cost of reinstating a building following a total loss. In addition to materials and labour, this includes all associated costs such as demolition, debris removal, planning and professional fees.
Each building will have features that can significantly alter a reinstatement cost, such as difficult site access, period features or specialist construction techniques.

Many property owners’ policies will not apply an average clause if professional valuations are undertaken at least every three years by a RICS qualified surveyor.

A qualified surveyor will have the expertise to identify and quantify these factors, and one should always be engaged when establishing sums insured for insurance purposes.

The benefits of having an up-to-date valuation

  • Ensures your Buildings Sum Insured is adequate.
  • Significantly reduces the risk of an underinsurance provision being applied to reduce the amount payable in the event of a claim.
  • Enables the insurer or the loss adjuster to immediately focus on the claim rather than any underinsurance issue which might delay the repair process and lead to potential unrecoverable increased costs.
  • Provides good corporate governance for any commercial business, helping to protect the rights of directors, employees and shareholders in the event of any insured major disaster.
  • Allows buildings of historic or environmental value to be restored without being lost to the wider community due to a lack of funds.
  • Provides peace of mind to all parties of the insurance contract.

If you need more information about obtaining a RICS valuation or want to know how Arlington Insurance Services can help you with this our contact details can be found here.

Hundreds of commercial properties “sitting targets” for waste criminals

It a well known fact that industrial units have always been targeted by waste criminals, leaving premises full of waste, often structurally damaged and with a costly clean-up bill.

Now investigations by the Environment Agency have revealed that ‘baled waste crime’ is on the increase. The waste is often plastic, builders, commercial or household rubbish that cannot be recycled and which has no monetary value.

Click here to read the full press release from the EA on this subject.

What are the risks of waste and how can you prevent yourself from becoming a waste crime victim?

There are several risks to property owners if waste ends up being illegally dumped on your land or premises.

  • Financial: waste illegally dumped will have to be removed to a permitted waste site. This inevitably falls to the property owner and the costs can be high.
  • Reputational: illegal waste dumping can result in considerable local and national media attention. These sorts of activities can damage reputations.
  • Enforcement: anyone involved in the illegal keeping, treatment and disposal of controlled waste commits an offence, in some cases even if it is done unwittingly. The Environment Agency can serve notice on property owners to clean up any waste left on their land if not correctly permitted.

Steps to take to protect yourself

Ensure you understand what your tenants business is:

  1. Ask if your tenant is involved in waste activities on your land
  2. Check if they have the necessary authorisations in place to carry out the activity, including planning permissions
  3. Use the Public Register to check your tenant has a current permit or carrier/broker registration: www.gov.uk/guidance/access-the-public-register-for-environmental-information
  4. Make sure you understand the difference between a site that is permitted by the  Environment Agency and one that is register exempt.
  5. Familiarise yourself with the relevant legislation and the risks posed to you if a site doesn’t meet the conditions of their permit or the terms of their exemption. An operator who registers an exemption yet fails to comply with the conditions set out in that exemption is carrying out an illegal activity.

Carry out rigorous checks on prospective new tenants:

  1. Make sure you secure adequate identification documents and a down payment from a traceable bank account.
  2. Use freely available information such as Companies House Beta. https://beta.companieshouse.gov.uk/
  3. If you are renting to a newly formed company, make sure you meet and initially deal with the Company Director.
  4. Investigate the status of the new company’s finances to ensure they are strong.
  5. Check if the new company has a website and look to see if contact details match those you have been given.
  6. Ensure you know what business they intend to carry out in your unit and that is appropriate for the unit size. Check their business model make sense. Ask for examples or references for work done elsewhere.
  7. Be cautious if your prospective new tenants arrive on foot and not in a vehicle.
  8. Make sure you check out the details of any witness to the lease agreements, to be sure they are plausible and traceable.

Check that tenants are operating properly by carrying out periodic inspections and audits. Any of the following could indicate they are not operating the business they said:

  1. More lorry movements that you would expect for their business
  2. Activities on site at strange hours of the day and night
  3. Evidence of unusual odours and/or pests
  4. Complaints from adjacent tenants about their new neighbours.

Share information on poor practice and suspected wrong-doing:

  1. The Environment Agency are looking for you to share information with a view to building effective partnerships, work together more efficiently and make earlier, more targeted interventions.
  2. You can contact the Environment Agency incident hotline 24/7 on 0800 807060.
  3. Or send information anonymously to Crimestoppers on 0800 555 111 or online at www.crimestoppers-uk.org.
  4. The reports they receive through Crimestoppers help them to identify companies that are illegally operating or exporting waste illegally.

What if it happens to you?

Many property owners policies contain an element of cover for Fly Tipping to pay for the costs in clearing and removing any property illegally deposited so if you do have an occurrence please contact us so we can notify your insurer.

Solicitors and Legal Indemnity Insurance

 

Legal Indemnity insurance is now common place in today’s UK property conveyancing market and if you require an insurance policy you should consider using Arlington Insurance Services because as an Insurance Broker we are a professional firm regulated by the Financial Conduct Authority (FCA) whose prime purpose is to help customers find suitable cost effective insurance protection.

We work with your solicitors or legal representatives to provide the appropriate solution and we have access to a wide choice of products from various insurance markets. We can also give advice on suitable insurance protection and we will provide clear information and documentation and state the costs of the policy including any fees.

For more information about legal indemnity insurance and about how Arlington Insurance Services can help you with this please click here to view our Legal Indemnity information sheet.

Beneficial Ownership Of Overseas Entities Holding UK Property – Draft legislation published

The UK Government has published draft legislation to implement a new public beneficial ownership register for overseas entities of UK real estate, as part of its anti-corruption policy. It will go live in 2021 and will have direct consequences for the UK real estate market.

The proposed new rules follow the introduction in 2016 of the People with Significant Control (PSC) public register of beneficial owners of UK companies, and research conducted by the department for Business, Energy and Industrial Strategy (BEIS). This is a a further step towards creating transparency of ownership of UK assets by overseas legal entities.

The Draft Registration of Overseas Entities Bill (click here to see the document) is intended to force overseas entities owning UK property to name their ultimate owners on a public register or face criminal sanctions (prison sentences of up to five years) and unlimited fines if they try to sell or lease the property without first registering the beneficial owners. The rules would apply not just to overseas companies but to ‘any non-UK registered body with legal personality that can own property in its own right’.

From 2021 it will require overseas entities to register with, and provide details of their beneficial owners to Companies House before the overseas entity can be registered as the legal owner of UK land – whether commercial or residential.  The register will be publicly accessible.

The Government is inviting comments on various aspects of its draft Bill by 17 September 2018 and it is intended that the new rules will come into force in 2021.

For more information on this topic click here for a recent article by Katten Muchin Rosenman LLP. If you wish to know more about our Real Estate propositions our contact details can be found here.

Changes to the taxation of UK real estate held by non-UK residents

Nearly two thirds of real estate investors are concerned by the impact of changes to UK Capital Gains Tax (CGT) according to a report commissioned by Intertrust.

The Government has recently published its response to the consultation alongside draft legislation covering some but not all aspects of the changes to the UK taxation of capital gains realised by non-residents from disposals of UK property.

As part of the Autumn Budget on 22 November 2017, the UK Government announced significant changes to the UK taxation of capital gains realised by non-residents from direct and certain indirect disposals of UK property which will have effect from April 2019. The new rules have the potential to impact significantly on the UK tax liability of non-residents holding real estate.

There will now be a further technical consultation on the draft legislation and the Government’s proposals but it is not anticipated that the main proposals will be amended significantly before they are put in place.

It appears that the Government has listened to feedback from the initial consultation concerning various perceived problematic aspects of the original proposals but with less than a year before the implementation, non-resident investors in UK property should be considering the potential impact of these changes for their existing and planned investments and if it might be necessary to consider a restructuring of existing arrangements.

For more information on this topic click here for a recent article by Katten Muchin Rosenman LLP. If you wish to know more about our Real Estate propositions our contact details can be found here.