I reside in a modest, quadruple level complex consisting of a blend of 30 two and three-bedroom flats, enclosed by a sturdy granite wall, positioned in a private, gated community in Dublin. Constructed in the early part of the 1970s, the flats wouldn’t have adhered to today’s rigorous criteria for materials and energy efficiency.
Of late, some flat owners have carried out modernisations to varying degrees, including upgrades to the bathrooms and kitchens, soundproofing, insulation, electrical systems, plumbing, and so forth, although, a few remain relatively untouched.
My initial concern revolves around the insured value of the property. €11.85 million is the insurance coverage amount for the entire complex, averaging to approximately €395,000 per flat. Considering that similar-sized modern flats around the neighbourhood are trading between €850,000 and €1,000,000 range, I’m not fully persuaded that in the event of total obliteration, remaking a 30-flats complex of the same size but with advanced specifications could be accomplished within the €11.85 million coverage. This is particularly concerning when incorporating the cost of demolishing the site, site clearance, professional costs, planning, local government levies, fire safety stipulations, mechanical and electrical works in the current insured valuation of €11.85 million.
This naturally leads to my subsequent query, which, I acknowledge, can only be addressed broadly as you lack detailed information. Would an insurance firm be willing to cover a complex like ours in its present state to a more fitting rebuilding cost, possibly around the figure of €16 million?
It is obligatory for a Owners’ Management Company in every development to always fulfil their fiduciary duties towards all members and one fundamental task is ensuring appropriate insurance coverage for the development.
Attempting to cut costs on the annual insurance premium to maintain lower service charges for the members is not economical in the long haul.
Expert advice can be instrumental in steering clear of reckless cost-saving measures in the short-term.
You’ve mentioned potential valuations of the flats in your question. It’s quite a prevalent error and it’s crucial for homeowners to comprehend the differentiation between a valuation and rebuilding costs.
The cost of reconstruction is linked to the expenses involved in constructing or refurbishing a property, while the market value is the price that a property would fetch if sold openly. These amounts can greatly vary. For insurance purposes, the most crucial figure is the reconstruction cost. There is a rebuild calculator made available by Society of Chartered Surveyors Ireland (SCSI) for individuals residing in varying kinds of home. However, this calculator doesn’t accommodate flats.
Over recent years, the costs of construction materials and labour have dramatically escalated, resulting in a high incidence of underinsured houses.
Underinsurance occurs when rebuilding a property following a claimable incident costs more than the policy will cover, resulting in a deficit. This gap in funding for reconstruction can become a considerable expense for the homeowners and should be avoided wherever possible.
For instance, should the reconstruction expenses for your home equate to about €440,000, yet it is only insured for around €330,000, you would be left with a €110,000 gap in the aftermath of a major event such as a fire. Additionally, some homeowners are unaware that if they are only insured for 75% of the reconstruction cost, they will have to fund the outstanding quarter themselves, regardless of whether the entire property or only part of it needs to be rebuilt. Hence, even if rebuilding partially only costs €100,000, the policy would only cover €75,000 leaving the insured party a shortfall of €25,000.
Therefore, it is essential for homeowners to ensure that the reinstatement costs indicated in their insurance policy are current and correctly matched with the property type and location.
Acquiring an accurate estimate requires a reinstatement valuation from a certified building surveyor. The SCSI’s website provides a list of available surveyors. An important reminder here is that many properties might be underinsured due to surging construction costs.
When individuals owning properties take the initiative to modernise their flats over a span of years, doubts may arise about possible structural changes that were made in the inherent framework of the building. It is mandatory that any material changes initiated after 1st June 1992 must comply with the Building Control Regulations. In specific cases, for example, flats which have been converted from segmented units to open-plan living, with added amenities branching into common spaces, could pose serious issues, particularly if the construction quality is substandard.
Insurance providers will require the property they are insuring to meet a certain standard. A competent insurance broker can advise you on adequate insurance coverage. Make sure to explore different options for your block-insurance coverage and request to view proposals from underwriters, which a decent broker should provide. Don’t neglect minor details beyond the yearly premium that needs to be paid. Arrangements for suitable temporary housing should be part of the package, ensuring that the time allotted is sufficient and will consequently cover the duration needed for reconstruction efforts. Another aspect that demands scrutiny is the deductible amount on specific cases like water damage.
Paul Huberman, a certified property and facilities administrator and also a member of the Society of Chartered Surveyors Ireland, is available for your questions at propertyquestions@irishtimes.com
This column serves as a resource for readers. The Property Clinic presents general information and is not a substitute for professional or specialist advice that readers should seek before making or refraining from any decisions based on its content. The Irish Times and its contributors will not be held accountable for any loss or damage resulting from depending on its content.