Considering a basement conversion? What insurance do you need?
Converting your basement into additional living space can both add value to your property (estimates come in at a 10-20% uplift) and also significantly increase your living area – sometimes even doubling the sq. ft. of your home. While it is a great undertaking, it is also often cheaper to convert or extend your basement than to move to a larger house. All very good arguments for progressing!
Although understandable, unfortunately insurance is not the first thing on your mind when the architects, builders and planners are helping to convert an existing cellar or digging out a new basement. However, there are a lot of things to consider before embarking on the works.
Current Buildings Insurance provider
Firstly, the insurance company that currently provides your buildings cover will want, and indeed needs, to know that work is going to be carried out. Considering insurers normally require to be informed of even relatively minor renovations, having work done that could influence the structural stability, security and value of the property they are insuring is of great interest.
So the first step should be to advise your existing insurer in good time of what work you have planned, including cost and timescales. This is irrespective of whether planning permission is needed. They will undoubtedly have more questions and hopefully will be happy for work to proceed. However do not be surprised if they have concerns. At best they will make demands regarding security and the insurance of contractors. At worst they will remove some or all cover.
If you do not get authority from your insurance company but then progress work and suffer a claim, you are likely to find your policy is void and you are not covered. If your existing insurer will not maintain cover then you will have to find alternative buildings insurance, often from an independent broker such as Sutcliffe & Co.
Secondly, in addition to making sure your existing property is insured, you’ll need to check that the contractors working on your basement are correctly insured. You should make certain that their insurance requirements are included within your contract with them. This is standard practice and would not be a surprise to a reputable and responsible contractor.
Builders and allied trades should have Public Liability insurance in place that can give cover should they negligently injure someone or damage property. Architects and other professionals should have Professional Indemnity insurance, which can give cover should they make an error or omission in the service, advice or design they provide. You may also require your builder to have Professional Indemnity insurance if they are involved in design work.
The limit of cover required should be enough to cover the worst case scenario of your builder burning down your house or your architect causing it to collapse, plus the resulting clean-up costs and legal and professional fees.
Another type of insurance that should be set out in your contract is what is known as Contract Works insurance or Contractors All Risks. This insures the ongoing renovation, extension or other works until they are completed and handed over to the property owner. It can also insure materials on site and in transit, site huts, security fencing, tools & equipment. Your contract may stipulate who is responsible for purchasing this insurance and who is covered. Most standard Joint Contracts Tribunal (JCT) wordings in the UK expect the employer / property owner and main contractor to be jointly insured on projects involving conversions or extensions.
Finally, all the recommendations above are appropriate for standard, above ground, building work, so it is also worth considering the additional risks basement conversions involve, such as damage to neighbouring property. For example, where the excavations could lead to allegations of issues such as subsidence, heave, landslip, collapse, vibration, lowering of ground water and weakening or removal of support – for example it has been known for digging under a property to lead to the neighbouring street collapsing. How to cover this? By specifying what is commonly called 6.5.1 Insurance (previously known as JCT 21.2.1), or Non-negligent cover, in your contract.
Non-negligent cover is normally taken out in joint names between employer/property owner and main contractor and designed to provide cover should there be alleged liable for loss or damage to surrounding properties.
Contract Works and Non-Negligent cover can be purchased separately and in some cases just for a specific contract. They can also be combined with Public Liability onto one annually renewable policy. The option you select very much depends upon circumstances. If you are concerned about cash flow, timescales, solvency or reliability you may also want to consider bonds and credit insurance.
While this may seem quite overwhelming, it does all need to be considered and dealt with – and we are of course happy to walk you through what you might need to help insure you for your specific basement conversion.
A contractor’s opinion:
Design 2 Finish is a residential building and renovation firm specialising in basement excavations. The company offers clients a complete service encompassing all aspects of a project; from the design and planning stage, right through to the final construction and fit out.
Alexandra Harvey, director, Design 2 Finish, commented: “We have been using Sutcliffe & Co for over 15 years and cannot fault the helpfulness and depth of experience. Any query we might have in regards to insurance is promptly answered and they always shop around the market place to get us the best deals. We have also recommended numerous clients to them over the years, and they are often able to help get difficult polices through, where many others brokers cannot.”