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Usually insurers require you to insure the rebuilding costs. You may also have to provide evidence of insurance protection to lenders if you choose to rent / lease your property. Rebuilding costs are different from the market valuation and is the cost of reinstating the property in a like manner or as new if it were to be completely destroyed.
Usual basis of cover
- Reinstatement enables rebuilding on a new for old basis in a like manner to what existed before.
- All risks includes accidental damage as well as perils such as fire, flood, malicious damage, subsidence and impact.
- Inflation protection to cover the potential increased costs involved in reinstating the property between the start and end date of the work.
For leased property
- Full repairing lease you will be responsible for all the ongoing repairs and insurance for the building. Although you don’t have any responsibility for improving the property, you still have to maintain it in a satisfactory state.
- Rented property the value of tenants’ improvements, where you have made changes to the building, will need to be insured.
You will need to calculate the full cost of replacing your contents, regardless of whether items were donated or not. Where you are running a retail outlet it is very important to maintain an inventory of stock and stock values, again, irrespective of whether items were donated or not. This is something you will find very helpful should for example there be a fire or water damage, as it enables you to demonstrate to your insurer the values of donated items as well as other contents. Many charities develop their own ways of valuing donations, such as bags of clothing, and it is worth checking with your insurer what they will find to be acceptable.
What is the difference between market value and rebuilding valuation?
When you acquired your building you paid a commercial rate that changes with market conditions – hence the market value.
To rebuild a property, you would have to pay for materials plus the current rate of building contractor’s wages and transport costs. The nature of some buildings, such as listed buildings, also increases the time and cost involved in restoration. This is why insurance companies ask for the rebuilding valuation, to ensure you have adequate cover in the event of any major rebuilding work.
The Royal Institute of Chartered Surveyors recommend you get an up to date re-building valuation every three years.
What if the building is to be unoccupied?
"Unoccupied" is often defined by insurers as untenanted, empty or not in use. The likelihood of more problems with unoccupied buildings, such as vandalism and burst pipes after severe weather, means that if insurers are not advised a building is unoccupied, the building is unlikely to be insured.
Companies providing unoccupied property insurance, will normally only do so if the insured is willing to help reduce the chance of a loss - this is known as risk-management. The insurer will advise you on how to protect your building to comply with their policy terms.
There may be an additional premium to pay, a reduction in the cover provided, or even cessation of cover. Your insurance broker can advise the terms of your policy. Cover is likely to be restricted and the level of cover available can vary from insurer to insurer.
We need to refurbish our newly acquired premises. Can we get our volunteers to help?
Many charities use volunteers to help decorate their premises. It is best to oversee volunteers to ensure they keep to ‘low risk’ activities such as preparation, painting and assembly using small hand tools. For specialist work such as electrical, heating and plumbing, it is best to engage professional contractors.
Experienced professional builders are recommended for any structural work.
How do we hire out part of a building to generate an income stream?
It would be prudent to gain legal advice. Many charities hire out premises in this way and often ask for hirer’s agreements to be completed, even for one-off rental of say a hall. You will need to work out with your lawyer and insurance broker what liabilities you want to take on and what to transfer to the hirer.
What if we want to hire out to tenants?
This is a specialist area so it would be best to get professional advice. Make sure you tell your broker / insurer that you are letting the property out.