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.
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.
'Appropriate public liability insurance should be held by landlords and property managers'
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.
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 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.
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.
'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'
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
Prof. Sara Wilkinson FRICS, Dr Gill Armstrong, Dr Kusal Nanayakkara, Mark Willers FRICS, Prof. Jua Cilliers and Dr Robert Fleck 08 December 2023