Converting offices into residential property
The general permitted development rights amendment last year facilitated a change of use for many commercial properties (enabling them to be converted into residential premises) and has prompted many conversions.
For those landlords looking at converting office space to boost their residential portfolios there are, however, a number of insurance implications to be mindful of. These relate to four common stages of the conversion process.
Buying the office and while you prepare for the conversion
If a landlord’s current insurance arrangements only cover residential property, they may need to take out new insurance to accommodate the commercial premises – especially if it still has tenants. It often helps to select a policy which can provide cover for all the different properties in your portfolio, rather than have to deal with multiple ones.
If your property is vacant for a period longer than allowable under the insurance policy, as you await the conversion to begin, do notify your insurer. They may stipulate more onerous terms and additional security measures to undertake. But if you don’t alert them to the property’s vacant status they can dispute a claim when a problem arises.
Insurance cover for the conversion
It is important to be clear what insurance cover is in place to protect both the property and ongoing works during the conversion period. It may be that you as the owner need to undertake this responsibility or it may lie with the contractor you have commissioned for the development. Insuring the work undertaken is often down to the main contractor but the contract should be carefully checked to establish each party’s responsibilities. Where a contractor’s insurance arrangements are used, do clarify that this gives sufficient cover for this assignment. Whatever the nature of conversion or construction work, it is important that the property’s insurer is aware of the exact works being undertaken and the project’s timeline.
Signing up tenants – insuring against future rental loss
Whilst the conversion work takes place, and if you sign up tenants in advance of the conversion being completed, you can insure against loss of future rent. Ask your insurance broker for more information and, in the event of a claim, be prepared to demonstrate that there are signed tenancy contracts in place for the property once it is completed.
Conversion into residential property completed
When the converted property is handed back from the main contractor, it is important that the property’s insurance reflects its ‘reinstatement’ value. This is the new value of the premises given the work done. Your insurer will need to know the new value in order to provide the right level of protection.
Throughout each phase, it is important to ensure your insurer is fully aware of the work being undertaken to the property and its current status. Having just one insurer able to deal with for all the properties in your portfolio may help to sort out any issues more quickly and effectively. Your insurer will also factor in the volume of properties you have insured with them and this can work in your favour.
*John Lanning is a director of Robinson Buckley Insurance Brokers Ltd.
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