One of a Residents’ Management Companies (RMCs) most important responsibilities is ensuring that the building is adequately insured. This means knowing when to commission a building survey or reinstatement cost assessment (RCA).
Inaccurate or outdated valuations can result in underinsurance, leaving leaseholders vulnerable to financial shortfalls in the event of a major incident. Conversely, overinsurance may lead to unnecessarily high premiums.
This guide outlines when RMCs should commission a building survey or valuation, the risks of getting it wrong, and how to stay compliant and protected.
Understanding Reinstatement Cost Assessments (RCAs)
A reinstatement cost assessment estimates the full cost to rebuild a building from the ground up following a total loss, including demolition, professional fees and construction – all in line with current regulations.
This figure is crucial for buildings insurance policies and it is not the same as market value (a common misunderstanding). RCAs reflect the cost to rebuild, not to sell.
RMCs are responsible for ensuring that the sum insured reflects the true reinstatement value. Most leases include a clause requiring full and adequate insurance cover, and failure to achieve this could result in breach of duty and financial exposure.
When to Commission a Survey or Valuation
While insurers typically recommend a full, onsite RCA at least every three to five years, there are several key events that should trigger an immediate review regardless of the date of the previous assessment.
These include:
- Fire, flood, or structural damage: After an incident that affects part of the building, an updated RCA ensures your insurance reflects any changes to condition or cost.
- Major roof works or renovations: Structural changes, extensions, or large-scale repairs can significantly impact reinstatement value.
- Re-cladding or external works: Following post-Grenfell reforms, changes to a building’s façade (especially involving combustible materials) can alter valuation and compliance needs.
- Loft conversions or internal layout changes: Alterations that change the building’s footprint or internal arrangement should be reflected in the insured value.
- Change in regulation or building standards: If national or local building codes change, it may affect future rebuild requirements and costs.
Waiting until your insurance renewal date isn’t always wise. If any of the above events occur during the policy term, it is essential to act immediately to avoid the risk of underinsurance.
Common Pitfalls to Avoid
Common mistakes include:
- Relying on outdated RCAs – valuations over five years old may be significantly out of step with current rebuild costs due to inflation or changes to the building.
- Providing the market value instead of the reinstatement value – the sale price of flats has no correlation to what it would cost to reconstruct the building.
- Neglecting post-works reviews – if your building has undergone major works but the insurance cover has not been adjusted, you may be underinsured.
- Relying on informal or online estimates – only professionally prepared RCAs from a qualified surveyor will stand up to scrutiny in the event of a claim.
Your Legal Responsibilities as an RMC
Under the lease agreement and company law, RMC directors have a fiduciary duty to act in the best interests of leaseholders, and ensuring the building is fully insured is part of that duty.
Failure to commission appropriate surveys or valuations can:
- Leave the block underinsured, exposing leaseholders to shortfalls
- Breach lease terms, leading to legal disputes
- Jeopardise mortgage compliance for residents
- Invalidate insurance claims
Documenting your valuations, keeping evidence of professional advice, and sharing updates with leaseholders helps demonstrate that you are meeting your legal obligations.
Reinstatement Cost Assessment Best Practice
To stay compliant and protect your building, RMCs should schedule full, in-person RCAs every 3–5 years. These should be reviewed more frequently in times of high inflation or after any works. A new assessment should be carried out after any significant structural or cosmetic change.
It is also worth conducting a building survey if you are unsure about the overall condition of the property. This can highlight repair needs that may affect insurance or maintenance planning.
Working with RICS-qualified surveyors with solid experience with leasehold law and residential blocks is paramount, and keeping detailed, evidenced records of all surveys and communications will make it far easier to prove your due diligence.
For a professional, accurate and trusted reinstatement cost assessment, we recommend working with Barrett Corp Harrington (BCH) who gave us their thoughts on the subject:
“A Reinstatement Cost Assessment is essential to ensure a building is properly protected. Without an accurate and up-to-date valuation, there is a real risk of underinsurance, (which can lead to reduced claims payments and unexpected costs for leaseholders), or overinsurance, where the policy holder could be paying more than necessary for their buildings insurance premium. Commissioning an RCA after major works or at regular intervals is a key part of maintaining adequate cover and fulfilling responsibilities.”
As a specialist in building insurance valuations, BCH is well-versed in the needs of RMCs and leasehold properties. To discuss your building’s needs, visit their contact page. Alternatively, you can request a quote here.
In Summary
With rebuild costs rising and legal responsibilities tightening, RMCs must take a proactive approach to reinstatement valuations. Please do not wait for a claim to discover that your building is underinsured.
Stay ahead with timely surveys, professional advice, and a solid understanding of when to act. It is the best way to protect your leaseholders, your building, and your peace of mind.
