Unoccupied Property Insurance
Houses that are empty are not homes. They are a problem.
Brian Dunk, Managing Director of Straight Solutions, warns of the risks to estates when a property is left empty.
Unoccupied properties come in all shapes and sizes. The only common denominator is that they are invariably valuable family assets that need to be properly protected. All the while a property remains empty it’s much more vulnerable to loss or damage with extra risks such as arson, malicious damage, attempted theft or weather damage often making them more difficult and expensive to insure.
In practical terms, the first question facing solicitors dealing with insurance for unoccupied houses is whether the estate has the necessary funds to pay the premium.
If the estate has funds that can be accessed easily there is the option of buying insurance for an appropriate period of time. Generally, when the premium is paid ‘up front’ you can usually obtain cheaper basic premiums. However, annual or 6-monthly ‘short-term’ policies are subject to cancellation charges that are heavily loaded at the front end. This sometimes means a full year’s premium is charged for the equivalent of just three or four months’ cover.
Risks of ‘short term’ policies
In recent years many practitioners have been taken down the route of funding a series of three or 6-month policies with premiums paid up front. This option has several risks for the firm:
- Paying too much for cover and
- Omitting to renew the cover
The latter risk is much more dangerous: we know of several professional indemnity claims costing over £100,000 where an uninsured fire has occurred in an empty house where the legal team had failed to renew cover. In one instance the Conveyancing team left it to the Probate team and the job fell between two stools. The best way we know to avoid the risk of gaps in cover or omission is a particular policy only available to solicitors called ‘Watchman’. It offers wide standard household insurance cover at a simple daily rate, with most of the premium deferred until the property is sold or for up to a year later, assisting the firm’s cash flow. A small deposit is paid at the outset and the final premium is charged according to the number of days on cover. That means you only pay for the days you need - and cancellation fees are avoided.
Beware cheap policies
They also mean stricter terms and conditions. Our experience shows that insurers do not put clauses into their policies unless they intend to use them. For example, many such policies have a seven day recorded inspection clause and in the small print “every room must be inspected”. Contrast that with Watchman insurance policies where only a 30 day inspection is required and any build up of waste and mail is removed. This seems far more reasonable and practicable.
Unoccupied property insurance can attract punitive levels of insurance premiums and sneaky policy conditions that can be difficult to comply with. Virtually all house insurance policies have some form of security warranty requiring that the house has locks that are to a minimum requirement of ‘5 lever MDL’ (meaning a very high quality Mortice Dead Lock that has been cut into the actual door and its frame – not just mounted on the surfaces), as well as key operated window locks.
In reality, very few older houses meet this standard. I don’t think I have ever visited an older bungalow that did not have a Yale-type front door “rim-lock” mounted on the surface of the door and these simply do not meet insurers’ requirements.
A more realistic security stipulation I like to see in policies such as ‘Watchman’ requires that all of the locks be left in the locked position and for the keys to be removed from the premises, which is much easier to comply with.
We have also regularly reviewed ‘unoccupied property’ insurance policies purchased from direct form insurance companies that actually contain a clause saying that if the property is left unoccupied for more than 30 days, the insurance is invalidated. Talk about caveat emptor. The lesson is – read the policy wording and only buy policies that have wordings you can trust.
In general terms, insurers often will not provide subsidence cover for empty properties, mainly because subsidence is of a long-term nature and undetected damage may have already existed for many years. It is not unusual for buyers (who spend more time looking around an empty house than one that is lived-in) to attempt to reduce a purchase price by suggesting that surface cracks may be more than they seem. This is a cue for a costly investigation.
Similarly storm, flood, theft and arson are dangers that are much more prevalent in some areas than in others so insurance for these risks are subject to the insurers’ individual postcode analysis, and approaches vary.
Be aware that insurers will often expect you to maintain a written record that the property has been inspected to the stipulated frequency of inspections, that is anything from once a week to one a month.
To help avoid water damage from burst pipes, most policies will carry a ‘Seasonality clause’ insisting that in defined Winter months (usually October to April) the water system must either be drained or the heating kept on at a minimum temperature (usually 15C degrees). The latter is preferable as warm houses encourage viewers, and water systems that are re-booted after a cold winter usually have ‘issues’ requiring a plumber on site.
Other issues that affect the cost and availability of insurance are the age and type of building, whether it is Listed (a factor that can significantly increase re-building costs) its construction (for example large felted roofs and thatching attract higher premiums), the future plans for the property (particularly if they involve building work) and the most important of all - the sum insured or limit of liability.
Homes where the owner is in residence are often insured and priced on a number of bedrooms basis, with a maximum sum insured fixed according to size of the property. Unfortunately, the market for unoccupied property does not follow this model and all property underwriters will seek to establish the precise rebuilding cost as their limit of liability or ‘sum insured’.
Rebuilding costs should not be confused with market values, since they are driven by different factors. Two examples illustrate the point:
- Single bedroom bungalow on the banks of the Thames with 1 acre garden: rebuilding cost £75,000 market value £650,000
- Listed stone cottage, 3 bedrooms in a remote village in Wales: rebuilding cost £250,000, market value £75,000
As the sum insured is the upper limit of what the policy will pay out, it is very important to avoid under-insurance (and a possible negligence claim) by ensuring the sum insured is adequate. The only foolproof way is to get a formal valuation from a Chartered Surveyor. That can be expensive, but many Estate Agents employ surveyors who will give you a valid opinion if they handle the sale for you. Other sources of guidance are the RICS index of rebuilding costs and the Association of British Insurers.
We always advise that an unoccupied property policy should include Property Owners Legal Liability cover as this will indemnify the estate for liability arising from injury claims from visitors (e.g. a tile blown off in a gale could seriously injure a passer by, as could a wall collapsing or a spreading fire). We recently insured a property with livestock in the garden, so liability in accordance with the Animals Act applied.
The potential complexity of insurance for unoccupied property suggests that you will often need expert assistance to buy appropriate cover at an affordable cost and with policy terms and conditions you understand and can work with.