Reinstatement Cost Assessments
A block of flats is insured for what it would cost to rebuild, which can be very different from what the flats would sell for. The reinstatement cost assessment is how that figure is set.
Last updated by the Plymouth Block Management team.
Rebuild Cost Is Not Market Value
The sum insured on a block's buildings policy should be the full cost of rebuilding it: demolition and site clearance, construction to the same standard, professional fees, and the cost of meeting current building regulations. It ignores the value of the land and what the flats would fetch on the market, which is why it can be higher or lower than the combined value of the flats.
A reinstatement cost assessment is a surveyor's calculation of that figure for the particular building, based on its size, construction, specification and location. The figure is built up from:
- Demolition, debris removal and site clearance
- Rebuilding the structure to the same specification, including the communal areas and any boundary walls and outbuildings covered by the policy
- Professional fees, such as architects, surveyors and engineers
- The extra cost of meeting current building regulations and planning conditions
What Underinsurance Costs
If the sum insured is too low, many buildings policies apply an average clause: a claim is reduced in proportion to the underinsurance. A block insured for 75 per cent of its true rebuild cost may find a claim paid at 75 per cent, even for a partial loss.
Overinsurance is less dangerous but still costs every leaseholder money, because the premium is calculated on the sum insured and passed through the service charge.
How Often to Reassess
Building costs move every year, so the sum insured is normally index-linked between assessments. A full reassessment by a surveyor is generally recommended at least every three years, and sooner after significant works, an extension, or a change in construction costs that indexation does not capture.
Where the lease allows, the cost of the assessment is a service charge item, because it protects the building as a whole.
Where We Fit
We do not carry out valuations ourselves. For the buildings we manage, we keep the declared sum insured and the date of the last reinstatement cost assessment on file, raise a reassessment with the board when one is due, and make sure the figure is passed to the broker at renewal.
Sources
Everything above is taken from these, not from a summary of them:
- Schedule, Landlord and Tenant Act 1985 (rights of tenants with respect to insurance) legislation.gov.uk
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Reinstatement Cost Assessments Questions
What Is a Reinstatement Cost Assessment?
A surveyor's calculation of the full cost of rebuilding a building, including demolition, professional fees and compliance with current regulations. It sets the sum insured on the buildings policy.
Should Reinstatement Cost Be Higher Than Market Value?
Not necessarily. Rebuild cost excludes the land and reflects what it would cost to clear the site and rebuild to the same standard under current regulations, while market value reflects what buyers will pay for the flats. In a high-value area it is often lower; in a listed or specialist building it can be far higher.
How Often Should a Reinstatement Cost Assessment Be Done?
A full reassessment by a surveyor is generally recommended at least every three years, with the sum insured index-linked in between. Reassess sooner after significant works, an extension, or a rise in construction costs that indexation does not capture, because an outdated figure is how a block ends up underinsured.
What Happens If a Block Is Underinsured?
Many policies apply an average clause, reducing a claim in proportion to the shortfall, so a block insured for 75 per cent of its rebuild cost may receive only 75 per cent of a claim.
How Can a Leaseholder Find Out the Sum Insured?
Ask the landlord or managing agent in writing. Under the Schedule to the Landlord and Tenant Act 1985 a leaseholder can require a written summary of the buildings insurance, including the sum insured. A buyer will usually see it in the management pack.
Related Pages
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Read moreManaging Agent for Residents’ Management Companies (RMCs)
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Read moreMajor Works and Section 20
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Our LPE1 management pack costs £414 including VAT, or £480 on a fast track, and an FME1 for a managed freehold estate costs £240.
Read moreTalk to Us About Your Building.