Buying a commercial property with a flat above

WesAslan

Hey everyone! 

So I'm buying a commercial property with a flat above, I will be using a mortgage to obtain the property. 

One of the lenders requirements/completion conditions is buildings insurance. 

The commercial unit is currently let on a FRI lease. Do I have to obtain a new buildings insurance or can I use the one currently in place? 

Basically I think the tenant pays the landlord the insurance premium and the current landlord takes out the insurance. 

The insurance is very recent and still has like 10 months on it, is it sensible I pay like £1.1k again or can I change the name on the current insurance to my one, is this common practice, can you transfer insurance? Do I own the insurance too if I purchase the property?

Essentially wouldn't it be double insured if I take out a new one, is that even allowed. 

What are my options here?  

Best regards, 

Wes x

DullGreyGuy

Have you checked that the existing policy covers both the commercial and residential unit? How are they apportioning the commercial aspect of it or does the lease state its a fixed percentage or such?

Are you in some way connected with the current owner as this wouldn't normally be a question and it would just be assumed the owner cancels theirs and you buy yours. 

I assume you are buying the building itself and not buying a company that happens to own the building?


The problem is that once you exchange contracts you are obliged to proceed with the sale. So what happens if the building suffers a major fire and when the current owner goes to try to claim they realise they forgot to declare they were made insolvent 6 years ago so the insurance is void? You still have to buy the smoking ashes or suffer the consequences of breaching the contract.  Because of this is normally advisable for the buyer to get their own insurance at the point of exchange to have certainty that it's covered for whatever happens. 

In principle an insurance contract can be novated from one policyholder to another, in certain areas it's not that uncommon but its not typically done for small modest policies. Naturally the contract of sale to date won't include the sale of the insurance to you (assuming its full paid up) and so you'd need to pay them extra for it and the fees for the novation and have no idea if you are buying insurance thats potentially invalid because of misinformation given when taken out.

WesAslan

@DullGreyGuy

Hey, thanks for the response. So basically I believe it covers the entire building and taken out by the current landlord. 

I received the insurance now from the agent, I wouldn't want to share it as it has personal insurance. 

Basically the total premium is like £1800 but the commercial tenant pays for £1.1k so I'm guessing the rest is for the flat. It says 60% payable by the commercial tenant to the landlord. 

Also I'm not connected to the current landlord. 

I'm buying the entire freehold through a limited company I have set up as a SPV. 

The misinformation part really does make sense. However, do the insurance companies not complete their own due diligence? Like wouldn't they want evidence of EPC reports, fire risk assessments, satisfactory current electrical installation inspection report for the property etc etc, I know these because I tried getting quotes and it was asking for these. 

In that aspect I would assume the previous landlord would have submitted everything to take out the insurance in the first place. 

But then again you can't be certain, what if they submitted a fake document I guess. 

DullGreyGuy

WesAslan said:
The misinformation part really does make sense. However, do the insurance companies not complete their own due diligence? Like wouldn't they want evidence of EPC reports, fire risk assessments, satisfactory current electrical installation inspection report for the property etc etc, I know these because I tried getting quotes and it was asking for these. 

In that aspect I would assume the previous landlord would have submitted everything to take out the insurance in the first place. 

But then again you can't be certain, what if they submitted a fake document I guess. 

General insurance is a contract of utmost good faith. In principle the insurer trusts that what you've said is true and you trust that they will pay you if/when you have a claim. You both act honestly and in good faith towards each other. 

Lets go back 8 years ago when insurers didnt have access to driving licence information... how many times when you've had a quote for your car insurance have you had to send a copy of your driving licence? A copy of the V5c and invoice to confirm the dates, keeper and owner were all correct? Or deeds of your home to show how long you've owned it? I know 2 brokers that routinely do it but its part of their business model to try and catch people out (in my opinion) whereas everyone else waits til claim stage and even then most only check if there is suspicious factors.

Now they're not that blind and as time goes on its easier to check things remotely etc but its rare that the insurer themselves are doing that much. Sometimes the broker will do more as a double service to the client and insurer as it helps ensure they arent underinsured etc but little goes over to the insurer other than a tick in the box saying checks have been taken. 

To give an example on the other extreme... once was involved in doing a quote for a bank, they had over 350,000 locations to be insured because it included every ATM as well as branch, office etc around the world. I know this as we used modelling software and it turned out the software could only cope with 250,000 locations in one go. All we got from the broker was a spreadsheet of the locations, what's at each one, its value etc. Some of the major buildings there was more data but less than 1% of the full portfolio. 

If we wanted to send someone to do a survey of all 350,000 locations it'd probably take more than a year to do it and add more than a little to the premiums!

WesAslan

DullGreyGuy said:

WesAslan said:
The misinformation part really does make sense. However, do the insurance companies not complete their own due diligence? Like wouldn't they want evidence of EPC reports, fire risk assessments, satisfactory current electrical installation inspection report for the property etc etc, I know these because I tried getting quotes and it was asking for these. 

In that aspect I would assume the previous landlord would have submitted everything to take out the insurance in the first place. 

But then again you can't be certain, what if they submitted a fake document I guess. 

General insurance is a contract of utmost good faith. In principle the insurer trusts that what you've said is true and you trust that they will pay you if/when you have a claim. You both act honestly and in good faith towards each other. 

Lets go back 8 years ago when insurers didnt have access to driving licence information... how many times when you've had a quote for your car insurance have you had to send a copy of your driving licence? A copy of the V5c and invoice to confirm the dates, keeper and owner were all correct? Or deeds of your home to show how long you've owned it? I know 2 brokers that routinely do it but its part of their business model to try and catch people out (in my opinion) whereas everyone else waits til claim stage and even then most only check if there is suspicious factors.

Now they're not that blind and as time goes on its easier to check things remotely etc but its rare that the insurer themselves are doing that much. Sometimes the broker will do more as a double service to the client and insurer as it helps ensure they arent underinsured etc but little goes over to the insurer other than a tick in the box saying checks have been taken. 

To give an example on the other extreme... once was involved in doing a quote for a bank, they had over 350,000 locations to be insured because it included every ATM as well as branch, office etc around the world. I know this as we used modelling software and it turned out the software could only cope with 250,000 locations in one go. All we got from the broker was a spreadsheet of the locations, what's at each one, its value etc. Some of the major buildings there was more data but less than 1% of the full portfolio. 

If we wanted to send someone to do a survey of all 350,000 locations it'd probably take more than a year to do it and add more than a little to the premiums!

Yh it makes sense. Just spoke to an insurer to get a quote and they confirmed I would need to reinsure it on my name and the current insurance isn't transferrable. 

However, as the commercial is on an FRI lease, I would possibly be able to get that cancelled by the current landlord whom took it out only a month ago and return the premium to the tenants and at that point I can reclaim it from the tenants. 

They would of course get a partial refund but everything counts.