All candidates undertaking property management work must comply with the current edition of Commercial property management in England and Wales, RICS guidance note, otherwise candidates should follow RICS professional statement Real estate management .
The services of a property manager are likely to include making sure that 'adequate insurance is in place to satisfy lease covenant and any lending institutions, and administering any claims'. These duties are discussed further in section 4.9 of the guidance note.
A property manager may be involved in the following insurance requirements:
Following my previous article on rent and arrears, this one will focus on insurance in the context of the Property management competency, although it will relate to the competency Insurance as well.
Appropriate public liability insurance should be held by landlords and property managers, although they will usually have separate policies because their interests differ. A property manager will sometimes be covered under the landlord's policy, but this must be agreed expressly in writing to avoid any risk of a claim.
Public liability insurance will provide cover in the instance that a user is injured while in the managed property. A claim is likely to be made against all the relevant stakeholders, such as the landlord, the relevant occupier, service provider and the property manager. Claims are more likely in buildings in multiple occupation, or those with high public footfall such as shopping centres or retail parks.
If an RICS-regulated firm is involved with general insurance distribution activities in the UK incidental to providing surveying services, it may need to be licensed through the RICS Designated Professional Body (DPB) Rules.
Regulation of this kind is a requirement of the Financial Services and Markets Act 2000, but is simpler and cheaper for firms than being regulated by the Financial Conduct Authority (FCA).
Commercial leases place obligations on the parties to be covered for:
Sometimes cover is taken out for a landlord's fixtures and fittings, or contents, and for engineering plant and equipment. The tenant will usually be responsible for insuring its own contents, if it wishes to do so.
Typically, the landlord is responsible for securing and paying for the insurance cover and it will then recharge the tenant for the cost of the premium. The tenant will need to keep the property in line with the repairing clause of the lease, comply with any requests for information relevant to the insurance cover, advise the landlord of any changes to the property, its use or occupation, to notify the landlord of claims in good time, and to avoid doing anything that invalidates the landlord's insurance cover.
However, in some circumstances a landlord may instead agree that the tenant is responsible for obtaining and paying for insurance cover. Typically, this is where the tenant has good covenant strength and occupies the whole building.
In this event, a number of issues need to be considered by the property manager.
The lease should set out the minimum insured risks covered by the policy, such as fire, lightning, explosion, aircraft, malicious damage, riot, water leakage, storm, flood, subsidence, theft, accidental damage and terrorism.
In relation to loss of rent, COVID-19 has tested out many parties' insurance cover. The case of FCA v Arch Insurance (UK) Ltd and Others  EWHC 2448 (Comm) concerned business interruption and landlords' loss of rent insurance cover. This relates to no-damage circumstances, that is where the loss arose from an event where no physical damage was caused to the property.
The Supreme Court ruling in this case found that, if relevant cover is in place, then loss of rent claims due to COVID-19 should be processed successfully.
There may be some circumstances where an insurer will not provide cover or cover is unreasonably expensive for certain types of damage, known as uninsured risks. This may be because insurance is not available in the market or there is a policy exclusion or limitation. Typical examples include terrorism or flood risk, although cover is sometimes provided under the Pool Re or Flood Re schemes respectively.
The current edition of Code for leasing business premises, RICS professional statement, says that, in the event of damage by an uninsured risk, either party should be allowed to terminate the lease where reinstatement of significant damage is not completed during any period of rent suspension stated by the lease.
There are a number of different types of cover, including reinstatement and indemnity. Reinstatement cover is most common, providing for the full cost to reinstate a new building equal to but not better than the building that was damaged.
Indemnity cover, by comparison, only puts the insured in the same position as they were before the damage occurred. This would be equal to the market value at the date of the damage, less the cost of repair (for the damage caused by the insured risk only) and depreciation. The risk here is that the pay-out may be much lower than expected; for instance, for a development site this could be nil.
'Day one' is another common insurance term, meaning that the sum protected is declared on the first day of the cover, with an inflation factor applied at the date of the damage.
Another key responsibility of property managers relating to insurance is when a property is vacant or unoccupied. This is because the risk profile of a vacant property differs significantly from that of occupied premises, and insurers typically apply conditions that need to be met for the period of the vacancy. This will also help in a practical sense, mitigating the risk of vandalism, arson and access by squatters.
Policies typically set conditions for the period a property is considered vacant, in terms of length of time and degree of vacancy. The insurer should be notified if a property becomes vacant so it can confirm whether the existing policy will continue to provide cover, a new policy needs to be arranged or additional cover is required.
Once the amended policy terms come into force, a property manager may need to comply with requirements such as:
It is clear that property managers have wide-ranging responsibilities in relation to insurance, some of which may be licensed under the DPB Rules. For the APC, an example of giving advice on insurance cover would make an excellent example at Level 3 of the Property management competency.
Related competencies include: Insurance, Property management