Intro 0:01
Welcome to the London Property podcast, your go to source for navigating the complex and ever changing London real estate market.Our digital marketplace provides informative and educational content from industry leaders, through podcasts and videos. We cover various aspects of the real estate experience, including buying and selling finance, law, tax construction, design, and more. Join us as we delve into the latest trends and developments in the market and gain valuable insights from our panel of experts.
Farnaz Fazaipour 0:34
Hello, and welcome to London Property, the home of super prime. I'm your host Farnaz Fazaipour. And today we're in conversation with George Seatter who is an expert in insurance. And welcome to the show.
George Seatter 0:48
Thanks very much Farnaz. Nice to be here.
Farnaz Fazaipour 0:51
George, can you just tell us a little bit about what makes you a specialist in this area, before we dive into our specific questions that we have for you today?
George Seatter 1:01
Sure, I'm always reluctant to you know, be held up as a specialist. But certainly by way of experience, I've been involved in the private client insurance business for 22 years, always as a broker, initially working for a very well known firm Stackhouse Poland that built over 15 years into one of the largest private client brokers, I then ran the insurance business for Savills as part of SPF private clients. And I'm now six years into building my own business with Vizion. So I'd like to think in that time, I've gained enough experience to know what I'm doing.
Farnaz Fazaipour 1:41
Yeah, you certainly do. Well, you've you've helped some of our members very successfully. So we thank you for that. We're going to talk to you today, in the first part of the series that we're doing with you about private client construction. And then there'll be a second part to our discussion, which will be more about second home versus principal homes, which will be in the next episode that we do together. So let's start with when an owner needs to start thinking about insurance.
George Seatter 2:15
You know, this is this is often an overlooked area. And you know, with any property transaction, particularly when it's it's a freehold purchase, it's important to consider when the risk passes to the purchaser. So traditionally, that's always been on exchange of contracts. But quite often, buyers aren't aware of that, unless it's flagged with them by their agent or their solicitor. So quite often, we see deals quite late in the day, it's pretty common for me to get a call from a solicitor or or a buying agent, or an agent and essentially saying, we've got a client there due to exchange tomorrow. No one's sorted out insurance yet, can you help. So we've become quite adept at being able to respond to those situations quite quickly. So traditionally, on a freehold purchase, the risk would pass from exchange, the only time that doesn't tend to happen is if there's a delayed period between exchange and completion. If it's six months or more, it's more sensible for the buyer, or sorry for the seller to retain their insurance. And then note the buyers interest on their policy. But increasingly, even in those situations, sellers are a bit reluctant to mess around with their insurance policy and and note the buyers interest, so, so quite often, even when there's a delay, you'd find that the buyers will organise cover from Exchange.
Farnaz Fazaipour 3:37
Yeah, it is. It does catch a lot of people out that. You know, because you don't you don't actually own the property.
George Seatter 3:44
But no, so why would you insure something you don't own?
Farnaz Fazaipour 3:46
Why would you insure you don't own and yes, I have been in those situations on Friday afternoon, like, quick, we need an insurance policy. Yeah, no, I get that. And what is covered and what is not in that situation where you've got this limbo going on?
George Seatter 4:01
Well, yeah, I mean, not only have you got limbo, but often you've got overlapping cover, because the seller isn't going to cancel their policy until completion is occurred, you know, for obvious reasons. But the buyers then also insuring the same house. And actually, it's quite interesting because jewel insurance is an area where the industry as a whole is it's not something that happens, it's not something that insurers would advise, yet it seems to happen. Every time that someone buys and sells a property quite often because it's only 30 to 60 days. It's just accepted that that's how the situation needs to be. But essentially what you end up with in that scenario, is the buyer buying something that we'd call contingent cover, obviously, the chances of them actually calling on their policy in this period between exchange and completion is quite unlikely. If there were to be a claim, it's more likely that the sellers policy would respond, but equally, the buyer has to protect their position. And quite often, particularly if there's finance involved, it will be a requirement of the lender, that before they allow funds to be drawn down for completion. And they've they've got to have evidence that insurance covers in place from exchange.
Farnaz Fazaipour 5:17
Okay. And, you know, in the Super prime world, a lot of people like to put their own mark on a property, whether it needs the construction, reconstruction or anything or not. So, presumably, there is also that where you've got potentially an architect involved at an early stage. Yeah. So now you've got three parties,you know, at the table. So what happens in situation like that, where works are going to happen, and presumably, the architect needs to have some sort of insurance as well. So what's going on now?
George Seatter 5:53
Yeah, again, it's another it's another interesting area. We said sort of before we started on camera, that that it's very rare that I see a deal now, particularly in the London market, you know, above sort of 2 million in value, where there isn't some element of works going on to the property before the client moves in. And I think it becomes more complicated, the higher the value of works. Generally, insurance companies that are covering the buildings and contents element of a risk are quite comfortable if the level of the works are up to 150 to 200,000, in value. And by comfortable, I mean that they generally, in that sort of situation, they wouldn't look to impose additional terms, they'd be quite happy for their insurance to remain in place, they might want to do some checks, in terms of the contractor to make sure that the contractor has suitable liability insurance in place, but it's an easier to manage risk. Where it gets far more complex is where the works are over, let's say 500,000 in value, and particularly where something like a JCT contract is being used.
Farnaz Fazaipour 7:03
Which brings me on to my next question. So I've heard that word, and I shouldn't know what it means. But what does JCT actually mean? And, you know, what are JCT contracts?
George Seatter 7:14
So it's the standard form of contract that's used in building works on residential homes. And there are lots of different types of JCT contracts. But in the main, they all cover the same things. And essentially, what they do is provide a framework for everybody that's involved in the I was gonna say transaction, but in the process, so it provides a framework for the client, it also provides a framework for the contractor. And it provides a framework for the project team to follow in terms of architects and QSs and so on. That's, that's in general what it does. From an insurance perspective, there are, there's a particular section of the contract that that identifies whose responsibility it is to insure and what they should be insuring. And typically, for renovations of properties, there's only really one of the three options that's applicable, which is where the client takes responsibility for the insurance for the overall project. And by that, what I mean is that they'll insure both the building, but they'll also insure the works in something called a "joint names basis with the contractor". So I can give you a bit more detail on that if you if you'd like to go into it.
Farnaz Fazaipour 8:29
Yes, please. Because basically, you're getting into a situation with double insurance again, because the contract is going to have to have insurance anyway for doing the works. But what you're saying is that the client has to do to?
George Seatter 8:43
Yeah, and actually, what I'm saying is, is that the clients insurance would supersede the insurance that the contractor would have. So if you assume that in any renovation project, there's two main parts to the insurance, there's the who's insuring the house, the existing structure as we refer to it, so how the building is pre any work starting, but then also who's insuring the works. And the reason that this option I'm discussing where it's the client's responsibility is the best one is, is because without it, there's no way of the client being able to organise insurance for the buildings. You go back to my earlier point, most household insurance will cover works up to 200,000. without any problem. Once you get over that level, they will either not offer cover, or only offer cover with particularly more stringent terms. And that's why this option of the client ensuring both the building and the works together is the only real option to make sure that the client has proper protection. And I suppose as a final point on that, to give you a working example, if you assume that the rebuilding cost of the property pre-works is 2 million, but the client is going to do a further million of works, and those works are gonna last for a 12 month period. If you assume that the house were to burn down, the day before the works are due to finish, there'd be no point in the client being insured for 2 million, because they'd need to be insured for the 2 million plus the million that they've spent. So that's what it protects is it allows through the, through the time period of construction, that the the works element will taper as we go. So that if any point, there's a problem, there's sufficient cover in place to, to reinstate and then the joint names bit really, it just means that the client insurers jointly with the contractor, so you know, you'd write a policy, in the name of Mr. And Mrs. Smith plus ABC construction limited for the period of the works, and what it also stops, is there being any arguments between insurers, you know, if you had a situation where the client was insuring the building, and the contractors insuring the work, so you've got two different insurance companies, so if there's a major claim, you're gonna have two companies arguing over who pays for what.
Farnaz Fazaipour 11:05
You're gonna have two companies both trying to get out of it.
George Seatter 11:09
Yeah, exactly.
Farnaz Fazaipour 11:10
So when the client does the joint insurance of both the works an
George Seatter 11:22
No, no, not at all. So that you're essentially, you're moving it away from the typical building and contents insurance policy, it then becomes a specialist renovation policy covering the building and the works. So there's no limit to the value of the works in the same way as they would be under a normal household insurance policy.
Farnaz Fazaipour 11:44
Right. But then the value of the works has to have the specialists as a joint with you, because obviously, you're not a builder.
George Seatter 11:53
Yeah, exactly. And that's where the involvement of the project team is particularly important. You know, we're constantly talking to architects QSs about joint names policies under a JCT contract. It's actually a very good source of business for us, because there's lots of really good architects and QSs in that sector who don't have anywhere to turn, don't have anywhere to recommend their clients to, in that situation where they're advising on those more complex works. So it's always an area that we're looking for business as well.
Farnaz Fazaipour 12:25
Yeah. But that makes a lot of sense to get it get it all lined up together.
George Seatter 12:29
Yeah.
Farnaz Fazaipour 12:30
Okay, can you tell us about how someone would go about getting construction insurance.
George Seatter 12:39
Yes, sure. So there's, there's a few key components, we'd need a rebuilding cost, which, which thankfully, most buyers will get, as they go through the process of purchasing a property, or at least they should, from the surveyor that's carried out a survey on the property pre-completion. So we'd need that, we also need a schedule of works for what the client is planning to do to the property. Now, at quote, stage, if we've got the rebuilding cost, we know who the contractor is, we've got an outline in terms of the value of the works, and we've got a likely duration, that's enough for us to put a quote together, but before that, quote, can be bound, insurers would need to see a detailed schedule of the works. And then what happens is, whereas traditionally, you organise a household or buildings insurance policy for a 12 month period, on these types of projects, you actually organise a policy for the duration of the works. So it stops being an annual policy, you know, and would literally just run and stay in place until the works are completed. And in terms of pricing, insurers will apply, sort of the things that drive the price tend to be the duration of the works, the complexity, and also who the contractor is. It's, it's to be expected that insurers in this situation before they sign off on a quote, will want to make sure that the contractor that the client wants to appoint are actually, you know, have the required experience for the work they're doing, particularly with basements.
Farnaz Fazaipour 14:12
Yes, big topic there. And do the contractors insurance not overlap a bit with the joint insurance they're going to get with the client?
George Seatter 14:22
Well, the problem is for the contractor, so you know, a lot of contractors will have an annual contract works policy with a level of cover, which which allows them to provide a certain amount of cover per project. But the challenge is, who insures the building. In that situation, the contractor can't insure the building, because they don't own it, only the client can insure the building. And if the client can't obtain normal buildings insurance because of the level of the works, the only way for this to be done is to have one of these specialists, private client construction policies in place.
Farnaz Fazaipour 14:57
Brilliant. Thank you very much for that. I'm going to take away some things you've taught me in this conversation and just to wrap that up, a JCT, is it a prescribed type of contract that comes from the Royal Institute of Chartered Surveyors?
George Seatter 15:10
No, it's just the standard form of contract used in these types of situations. We have on occasion seen a variation issued by RIBA but but in the main, the JCT tends to be the standard bearer.
Farnaz Fazaipour 15:24
So it's a prescribed form. Okay, brilliant. Well, thank you very much for talking to us. I think that you're definitely going to help some of our listeners make decisions with the insight you've shared with us. And for any of our listeners who are members, they can head over to our experts directory and chat with you directly. Anybody else who wants to get in touch with you, obviously, they can let us know and we can, we can connect them. So thank you for talking to us.
George Seatter 15:49
Thanks very much, Farnaz.
Outro 15:51
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