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Irish Times Property Clinic 14th day of March 2024.

 

 

 

Publishing Date; Thursday the 14th day of March 2024.

 

Q I live in a small 4 story complex of 30 apartments surrounded by a granite wall in a private gated development in Dublin 4. The apartments were built in the early seventies and so would not have been built to the high standards of energy efficiency and materials that would be required in modern construction methods used today. The apartments range in size from about 85 square metres (2 bed) to 115 square metres (3 bed).

 

Some of the apartments have been modernised by their owners in recent years to different quality standards, e.g. bathrooms, kitchens, sound-proofing, insulation, electrical, plumbing etc. Others remain largely unchanged from their original specification.

 

My first question centres around the insured value.

The complex is insured for €11.85 million, which works out at an average cost of about €395,000 per apartment. Modern similar sized apartments in the area are selling for about €850,000/€1,000,000 and on that basis I am not convinced – were the block to be totally destroyed, the true cost of rebuilding a complex of 30 apartments to a similar size with enhanced specification could be completed for €11.85 million? Particularly as the site demolition, site clearance, professional fees, planning, Council levies, fire safety, M&E, electrical etc. would be included in the current insured valuation of €11.85 million?

This leads to my second question and it’s a question in principle only as I know you can, without observing the facts concerning the complex, only reply in a general way.

Would an insurance company agree to insure a complex such as ours in its current condition as described above to a more appropriate rebuild figure? I am thinking perhaps about €16 million.

Would be greatly appreciative of your comments.

A. An arbitrary property reinstatement valuation will lead to an arbitrary building sum insured arriving at the plausible possibility of underinsurance.

A director of an owners' management company is required to exercise their fiduciary duties at all times, applicable in this case seeking to ensure that there is adequate insurance cover in place for the development. Saving money on the annual insurance premium for members service charges to remain lower is a false economy.

Professional guidance will ensure that a risky short term cost saving measure is avoided.

 

Construction materials and labour have increased significantly over the last couple of years resulting in a large amount of residential developments being underinsured.

Underinsurance is when the cost of rebuilding the property, after a claimable event occurs, costs more than the insurance policy will pay out thus leaving a shortfall. A shortfall for rebuilding a residential development would be an enormous burden for the members to absorb and should be avoided at all costs.

 

“For example if the rebuild cost of your home is say €440K and you only have it insured for €330K, in the event of a catastrophic event such as a fire, you will be facing a shortfall of €110K. However, what a lot of homeowners don’t realise is that if in that situation there was a partial loss, which cost €100K to repair, the insured party would only receive €75K and face a shortfall of €25K. This is because the homeowner in question has only insured their property to three quarters of its rebuilding cost.” 

That is why it is important for homeowners – and in your case the Owners Managers Company – to ensure the reinstatement costs stated on the insurance policy are up to date and appropriate for the house / apartment type and location.

 

To get an informed opinion requires a reinstatement valuation from a chartered building surveyor. A list of practicing Surveyors can be found on website of the Society of Chartered Surveyors Ireland, www.scsi.ie

 

You mention property owners undertaking modernization of their apartment over the passage of time, this could raise questions as to whether material alterations of the building have occurred within the existing fabric of the building. Since the 1st of June 1992 material alterations must be in accordance with Building Control Regulations. For example issues might arise with apartments which were previously compartmentalised but are now open plan with additional services connecting into common areas. These kinds of alterations can be particularly problematic if the workmanship is poor.

 

Insurance companies will seek to have the asset they insure to be of a minimum standard. A good insurance broker can give you advice on the matter of adequate insurance cover. Shop around for block insurance cover and ask to see the underwriters offers. A good broker will provide this. Pay attention to small details beyond the annual premium to be paid. Provision for appropriate alternative accommodation should be included to ensure that the period provided for is appropriate and will adequately cover the time required for rebuilding works to be completed. Other details that particular attention should be paid to is the excess amount on certain issues such as water damage.

Paul Huberman FSCSI FRICS is a chartered property and facilities manager, and a Fellow of the Society of Chartered Surveyors Ireland and the Royal Institute of Chartered Surveyors. 

Author: Paul Huberman of H&H Property Management Consultants Ltd

Publish Date: 14/03/2024

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