The recent wet weather has once again brought into sharp focus the consequences of flooding for property owners. It is not just properties close to a watercourse which are at risk. Surface water flooding from heavy rainfall, raised groundwater levels and blocked drains and sewers combine to increase the risk. In addition to the record wet weather experienced recently, the uncertainty posed by climate change means that planning for flooding will become the norm for many of us, if it has not already.
How does this affect the property market?
The relevance of flooding to property owners and those working in the property market goes beyond the need to rectify or prevent physical damage and budgeting for increased insurance premiums. Some commercial property owners may find that insurance cover is simply unobtainable. Uninsured properties are not valid security for lenders, in turn making them unsaleable. Damaged confidence in the Government’s commitment to preventative measures strikes another blow to property prices in certain areas. Developers may need to pay for complex flood risk assessments as part of planning applications. The list goes on.
In the face of all this doom and gloom, two questions must be asked:
- What protection is there for property owners?
- What action can – and must – property owners take for themselves?
What protection is there for property owners?
Until April 2016, the insurance industry has agreed with Government that it will provide affordable cover to all but the highest risk residential properties and ‘small business’ properties built before 2009 (the definition of ‘small business’ varies from one insurance provider to another). From April 2016, a new scheme called ‘Flood Re’ will apply. By paying into a re-insurance pool fund, and with Government as a final layer of protection, insurance firms are expected to have increased confidence in paying out for high-risk properties. Customers will continue to deal directly with individual providers, their premiums calculated on their Council Tax banding. Excluded from this scheme are just about all commercial enterprises. Only residential properties qualify and even these are subject to exclusions. If you are a residential landlord, for example, you only qualify if your building contains no more than three units.
What action must property owners take?
- Assess the risk before buying
The Environment Agency’s Flood Map search shows the extent of river and coastal flood plains, and for a small fee the Land Registry’s Flood Risk Indicator gives an impression of the vulnerability of a particular area of land. Neither takes groundwater flooding, surface water flooding or sewer flooding into account. A commercial flood risk assessment may be costly but should be considered as important an investment as a building survey. It can be tailored to your individual property. Be sure to consider the terms on which the search is given, including any limit on the provider’s liability.
- Consider installing flood prevention measures
There is a wide array of flood prevention products on the market. Before investing, consider whether your insurer gives any credence to these measures. Consult the Environment Agency for advice on the possible consequences of major installations and make sure that any product you buy is Kitemark accredited.
- Plan for flooding
Write a plan detailing how you will respond to flooding in order to protect staff, deal with hazardous equipment and control pollutants.
If your business is already affected:
- Follow your flooding plan to protect your staff and to anticipate personal injury at work claims.
- Check your policy. You may be insured for business interruption, as well as physical damage. Business interruption cover can include paying salaries, loss of profit, denial of access (for example if you experience a reduced footfall because of road closures), increased working costs and supply chain interruptions.
If you cannot obtain insurance:
- shop around and negotiate directly.
It may sound obvious, but shopping around for yourself may reveal insurers not included on price comparison websites. The justification for commercial properties being excluded from Flood Re is that their individual nature makes scheme-wide risk assessment impracticable. Take advantage of this gap in provision by negotiating individual terms directly with a provider or consider appointing an insurance broker to do the negotiation for you.