A property bought to renovate is often at its most challenging stage to insure: frequently empty, sometimes derelict, and about to become a building site. There are bespoke insurance programmes available for exactly these properties, and this article sets them out stage by stage, from exchange of contracts to completion of the works.

Exchange: the risk can be yours before the keys are

Depending on the conditions of sale your solicitor uses, the risk in the property commonly passes to the buyer at exchange of contracts, not at completion. The reason is that at exchange the buyer becomes contractually bound to proceed to completion, so if the property is damaged between the two dates the buyer must still complete the purchase and bears the consequences. It is therefore in the buyer’s interest to arrange suitable insurance from exchange, so that any damage arising before completion is covered. In practice this means you hold an insurable interest in the property, and potentially the loss, weeks before you own the keys. Ask your solicitor specifically who carries the risk between exchange and completion, and if the answer is you, cover needs to start at exchange.

From exchange to the start of works: providing a fair presentation of the risk

A property bought for renovation frequently does not comply with the standard assumptions and requirements that underpin a standard household policy: it may be unoccupied, uninhabitable, or simply in poor condition, and standard insurers will often decline or restrict such risks. The temptation is to describe the property optimistically to get a standard policy bound. By doing so, however, there is a material risk that the policy will not respond at all, in which case the premium has bought nothing. The law sets out what a policyholder must tell an insurer, and the duty differs depending on whether the property is being bought as a private individual or as a business.

For a consumer, buying the property for themselves or their family to live in, the duty is to take reasonable care not to make a misrepresentation to the insurer: answer the insurer’s questions accurately and completely, and correct anything you realise was wrong. For a commercial customer, such as a developer, a company or a landlord buying to let, the duty is the wider duty of fair presentation: to disclose every material circumstance the business knows or ought to know after a reasonable search, or failing that enough information to put a prudent insurer on notice that it needs to ask further questions, and to present that information in a way that is clear and accessible. In both cases the consequences of getting it wrong range from a reduced claim payment to the policy being treated as if it never existed, which is why the unoccupied, uninhabitable or poor-condition nature of a renovation purchase should be stated plainly from the outset.

Two routes then follow. Where the works will start promptly, a renovation policy can begin at exchange, covering the property from the point the risk passes to you; the works should typically commence within the first sixty days. Where there will be a longer gap before the works start, an unoccupied property policy carries the interim period, usually on restricted perils and with conditions about inspections, water systems and security that must be strictly adhered to. Our article on unoccupied properties and policy conditions covers those obligations in detail. Renovation policies are arranged for a defined period matched to the expected duration of the project, typically from three to thirty-six months, and if the works overrun the policy can usually be extended for a pro-rata additional premium plus an insurer administration fee.

During the works

Once the project begins, the single project policy does the work our renovation insurance page describes: the existing structure and the new works insured together, in joint names where a contract requires it, with public liability for you as the project’s employer, and optional non-negligent liability cover added where excavation or structural work happens close to neighbours. It is important to remember to set the existing structure sum insured from what the building would cost to reinstate, not from what you just paid for it. And if the scope of works changes mid-project, as it often does once the building is opened up, keep the insurer updated.

Practical completion: the handover

When the works complete and the property reaches its intended use, the project policy automatically ceases, and cover needs to be arranged on an alternative product: a household policy for a home, or a property owners policy for a letting or a development exit. The new policy should start from the post-works reinstatement cost, and if the property will stand empty while it sells or lets, the current and expected unoccupancy must be declared.

Property developers who intend to do this repeatedly, building a portfolio project by project, usually do better arranging the sequence with one broker who sees the whole pattern and can arrange cover with a specialist insurer, or a number of insurers, for the different stages of the property development process.

At Daines Kapp we provide insurance solutions for the project cover, the interim cover and the end policy that follows, arranged in the right order from exchange onwards.