JMC | Reinstatement Cost Assessments

I N S U R A N C E VA LUAT I O N S

Reinstatement Cost Assessments 0161 773 1122 | jmcope.co.uk

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What is a Reinstatement Cost Assessment (RCA)?

The Royal Institution of Chartered Surveyors (RICS) states that an RCA is an ‘assessment of building reinstatement cost for insurance purposes’.

The assessment is normally conducted by a qualified surveyor who calculates the cost to rebuild the property. The RCA also advises the client on the total cost of demolition, professional fees, any statutory authority fees and the relevance of current statute which could impact on the RCA.

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Why do I need an RCA carried out on my property?

People can confuse capital value with the cost of rebuilding the asset. There is no correlation between these two sums. Furthermore, relying on the rebuilding sum advised in a valuation report is a risky practice as the valuation surveyor is often unqualified to comment on reinstatement value and there is usually a caveat below the figure stating that it should not be relied upon.

Clearly, this can have a catastrophic effect for landlords, tenants and banks with charges over affected properties. Should this occur, the property owner or managing agents (where appointed) will be liable for any shortfall in the insurance settlement. Many of the larger insurers waive the Clause of Average if a Chartered Surveyor has revalued the building within the last 3 years.

Brokers will invariably increase these figures annually by an inflation index. This only compounds the initial error, leading to greater inaccuracy in the sums being insured. Labour and material costs often increase beyond the cost of inflation and additional factors such as location and site constraints will have a significant impact on the overall value.

Equally, it is in the interest of a Landlord to ensure that their property is not over-insured. An over-insured building will result in inflated insurance premiums being demanded by the insurers, which will increase the total cost of occupation for a tenant and make it harder to demand rental increases.

To compound the risk to landlords, Insurers Clause of Average is a policy condition set by an insurer that stipulates a payment for what the damage or loss will be in proportion to the value insured. For example, if a building is worth £1 million but only insured for £500,000 is totally destroyed, the insurers will only pay £250,000.

Research by Aviva suggests that up to 77% of professionally valued buildings are actually found to be under-insured, putting commercial property owners’ investments at risk. It is estimated by AXA that the average UK property is under-insured by as much as 40%. In total, UK commercial properties such as shops, factories and warehouses are under-insured by an estimated £325bn, according to research by Towergate.

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Why choose JMC to carry out an RCA on my behalf?

JMC are a firm of Chartered Surveyors, Project Managers and Quantity Surveyors, regulated by RICS. With nearly 20 years experience in construction, building surveying and commercial property management, we have the knowledge and experience to provide landlords with the solutions they require in adequately insuring and managing risks within their portfolio.

We understand the uniqueness of property, the constraints that will inflate construction costs and other matters that will affect value. We take into account matters such as demolition, shoring up, site clearance, radon attenuation, contaminated land remediation as well as professional fees, and costs due to delays for design and planning.

This information is presented with a full annotated photographic schedule identifying any observed defects, commenting on any other observed management concerns. We can also, at additional cost, assist by preparing a PPM Schedule with budget costings and timings for essential maintenance and repairs of multi-let properties over a period of years to assist with service charge budgeting.

JMC is regulated by the Royal Institution of Chartered Surveyors.

At JMC, property is personal.

Our unique approach is not limited to the task at hand. We will use our experience in management and professional work to provide a tailored service, dedicated to providing you with the additional information that will prove to be a valuable resource in assisting with the general management of the premises.

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Case studies Factory Complex, Royton Current Sum Insured: RCA Sum Insured: Increase in Value:

£11,071,535 £14,951,814 £3,880,279

We were asked to value this large factory complex as the sum insured was taken off an old valuation report and simply index linked to inflation to increase over the years.

It was found to be significantly under-insured.

Consideration was given for asbestos removal and contamination remediation.

Large Chemical Factory, Salford Current Sum Insured: RCA Sum Insured: Increase in Value:

£15,450,000 £48,880,000 £33,430,000

We conducted an RCA on a chemical plant in Salford, Manchester that spans approximately 31 acres of land and in excess of 50 separate buildings. The site was under-insured, and had there been a claim off the policy, it would have resulted in the insurance company refusing to pay out for the full costs of rebuilding of site.

Industrial Estate, Chippenham Current Sum Insured: RCA Sum Insured: Increase in Value:

£5,149,596 £8,201,548 £3,051,952

This site purchased in 2020 was valued at the point of purchase when we undertook the pre-aquisition building survey and was found to be significantly under-insured by the vendor. The client ensured it was adequately insured going forward and mitigated his risk in relation to owning the asset.

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51 Water Lane, Wilmslow Current Sum Insured: RCA Sum Insured: Decrease in Value:

£4,142,306 £3,735,564 £406,7342

Since purchased in 2018, the property was insured for the declared figure at the time. However, the RCA undertaken in 2020 reduced this. The 1st floor is presently vacant with the landlord absorbing a third of the cost, hence there was a demonstrable saving to be had by both landlord and tenants.

Osborne Court, Gadbrook Park, Northwich Current Sum Insured: RCA Revaluation: Increase in Value:

£7,200,000 £8,313,500 £1,113,500

This building purchased in 2018 was revalued in 2020 and deemed to be under-insured. The building is fully let to a large bank and therefore there is significant risk to the landlord in the event the property suffered a total loss whilst under-insured.

Dronfield Civic Centre, Dronfield, Derbyshire Property Sold for: RCA Sum Insured:

£3,400,000 £9,051,183

This site purchased in 2020 was valued at the point of purchase and we include it here as a demonstration of the huge disparity between capital value and reinstatement value. The cost of rebuilding this site is some £5.5m greater than the capital value.

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FAQ’s What types of building require RCA’s?

RCA’s are carried out on any type of commercial property; retail, office, leisure and industrial.

How is the RCA calculated?

The valuation is based on the gross internal area of a property, and rebuild costs as sourced from the RICS Building Costs Information Service, pricing from completed projects we have undertaken and elemental costs from other cost information resources. We also take into consideration any non-standard features that will increase the rebuild costs as well as costs involved in demolition and site clearance and professional fees applicable. Site restraints and access issues are also considered as well as shoring up of any adjoining premises and other associated costs.

Who is responsible to insure a property?

It is the responsibility of the landlord to ensure that the correct level of insurance is in place for a property. Failure to do so could result in inadequate payouts from insurers or, in some cases, repudiation of the claim. Additionally, if a property was not insured to a sufficient level, it could result in a tenant making a claim for negligence on the landlord or their managing agent.

Who pays for the RCA to be carried out?

Commercial FRI lease often specifically allow for the cost of carrying out an RCA to be rechargeable to the tenants of a property. On residential properties the leases will likewise allow for the cost to be recovered through the tenants insurance obligations.

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What if the property is vacant, only part-tenanted or owner-occupied?

The fact that a property is vacant has no impact on the necessity of conducting an RCA. It is still imperative to ensure that the property is adequately insured.

However, due to the fact that the property is not fully let/owner-occupied, the landlord would be unable to recover the full costs of the RCA.

What is the RCA procedure?

We will if required, review the lease and advise whether the fee for carrying out the RCA can be recovered from the tenants. Once this has been established, we will arrange to visit the site to measure and inspect the property. We aim to complete our valuation and report within two weeks of visiting the property.

How often do I require an RCA to be carried out?

The RICS recommendation is that a full RCA should be carried out every 3 years. It is essential that whenever there is a material change to the building, the RCA should be reassessed.

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10 Years of exceptional results and trusted service.

Providing professional services to our valued clients for the past decade across the UK. JMC was founded in 2010 to take the frustration out of owning, managing and renting commercial property. We offer specialist advice and recommendations along with professional reports.

We bring wide ranging expertise to the table and advise clients on the best way forward. Our clients have come to rely on that service, every single day!

Over 90% of our clients reply to our proposals and recommendations with a resounding ‘Yes’ because they trust our judgment.

Call us on 0161 773 1122 to discuss how we can add value to your asset or portfolio.

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47 Bury New Road, Prestwich Manchester, M25 9JY T 0161 773 1122 E mail@jmcope.co.uk

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JMC is regulated by the Royal Institution of Chartered Surveyors.