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complicated factors involved you really need a professional to calculate an accurate figure. Why are RCAs so important? According to the BCIS General Building Cost Index, a block of flats costing £1m to build in 1985 would now cost £3,310,000, not accounting for location. According to the Retail Price Index (RPI), inflation has only gone up 209% in that period. Calculating the DV using BSIC data alone would generate a figure of £3,089,530, meaning under- insurance of £220,000 or 7%. Furthermore, rebuild costs are highly subjective to the area of the country that you build in. Put a hypothetical block of flats in Northern Ireland and you can shave 30% off the cost of building; move it to London and you can add 30%. DVs for buildings insurance can vary significantly depending how matters such as VAT and demolition are dealt with too. It’s no longer any good relying upon crude measures such as ‘RPI inflation’ to work out your DVs. The risk of over-valuing DVs may not appear immediately obvious. If a building’s DV is unnecessarily high, the insurance premium your client or the leaseholders pay is pointlessly higher. And if you under-insure your building, the insurer may cap any pay-out to the percentage by which the building has been under-insured. A block of flats with a true cost assessment of £20m, but a declared value of £16m, is 20% under-insured. A £200,000 insurance claim for escape of water damage could then be capped at £160,000, leaving a painful shortfall. That’s why property managers and their clients risk being taken to the first-tier tribunal for negligence if fresh RCAs are not undertaken every three years. James Paul MRICS is a director at EK Reinstatement Cost Assessments
How do you value your interests?
D id you know that the rebuild cost (otherwise known as the declared value) for a blocks of flats under your management needs to be reviewed at least every three years according to the RICS? If under-insurance is evident, insurers may refuse to pay claims in full, leaving your client to foot the bill for the difference. If you read the small print in your insurance policy wording, it will normally state that your client (the ‘insured’) is responsible for ensuring that the declared value (DV) is adequate and up to date. But how is a property manager to do this for their client? Many brokers will just ask you what the block is currently insured for then index link that amount (add on a bit for inflation) for the forthcoming
What would it cost you to rebuild your block? James Paul explains why its not a straightforward calculation
To have your building insured for the right rebuild cost, it’s vital that you arrange what’s called a Reinstatement Cost Assessment (RCA) every three years or when there are significant changes to the building (such as an extensive programme of major works or a significant licence to alter project). The good news is you don’t have to pore over the Building Cost Information Service (BCIS) data yourself; building surveyors can help. In fact, given all the other
year. And, hey presto, there’s your new DV! There are obvious dangers to this index linking approach, not least as the DV to start with needs to be correct, so ending up with a DV that is too low (or even too high) is likely. Insurers are increasingly expecting VAT to be included in the rebuild calculations. Factoring this in isn’t as simple as merely adding on 20% because the ‘works’ element of rebuilding can vary block to block and is never a set proportion.
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