Purchasing property in a flood risk area

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  Posted by: The Probe      9th April 2020

Over the years, we have seen environmental reports flag up the possibility of certain areas in the UK being more susceptible to flooding, with flood episodes becoming increasingly unpredictable. This can make the possibility of using bank security to purchase property in such areas more difficult to obtain. Furthermore, this can make it difficult to obtain insurance. Even if insurance can be obtained, it may be at a higher premium or with a high excess for flooding claims.

When any flood risk is identified – no matter how remote – it is important to make investigations with an insurance broker in regards to the availability of insurance for the property as soon as possible.

There are several types of flooding that could occur, including surface water, sewer, groundwater, river and coastal. Your property may be situated on mainland and not near a river or coast, but it might have a potential flood risk due to a previous history of claims for surface water flooding in the area.

Residential properties have the benefit of an insurance scheme called Flood Re, which was introduced by the government in April 2016. This offers insurance at a set price to residential properties within high flood risk areas. In order to benefit from this scheme, there are requirements that need to be met and one of the main points to consider is that the policy holder, or their immediate family, must live in the property. This means that buy-to-let properties within high flood risk areas cannot benefit from this extra insurance.

For commercial properties, there is no such extra insurance that can be obtained. However, in 2016, the British Insurance Brokers’ Association (BIBA) launched a commercial property insurance scheme that benefits small business by offering access to flood cover. Owners and occupiers of commercial property still need to consider when purchasing a property:

  • What happens if the property floods and you cannot continue your business
  • Whether the lease has the option to not pay rent if the property is not fit for occupation due to flooding
  • Who bears the liability and cost for damage to any assets within the property
  • Whether you can obtain insurance for loss of rent as a landlord
  • Putting a flood plan in place

Information is available from the following sources:

  • Environment Agency’s website
  • HM Land Registry Flood Risk Indicator – This is for registered properties only and can be purchased through their online portal.
  • Screening reports – These are non-property specific reports that are based on the area that the property is located.
  • Commercial Searches – There are a wide variety of commercial searches available that have differing levels of information.

In TA6 for residential properties and CPSE1 for commercial properties, there is a question as to whether the property has ever suffered from flooding and to provide details. It would be prudent to expand on this enquiry to see if the seller is aware of any flooding in the ‘area’. These replies should not be solely relied upon, but may highlight a need for further investigation.

If a buyer wishes to, they could instruct a specialist survey from a suitably qualified professional from one of the following organisations:

  • Royal Institution of Chartered Surveyors (RICS)
  • Chartered Association of Building Engineers
  • Chartered Institution of Civil Engineering Surveyors (ICES)
  • Chartered Institution of Water and Environmental Management

These surveys may be able to assist in providing further information, but they might also offer insight on steps that can be taken to mitigate exposure to flood damage. If a Flood Risk Report is drawn up by the qualified, independent surveyor before and after installation of flood resistance and resilience measures, this report could be provided to a prospective insurer if insurance cover flood risk is difficult to obtain.

It is important to ensure that you have the peace of mind that there is insurance in place if flooding does occur. In most transactions, a buyer is responsible for insuring the building from exchange of contracts. It is therefore vital that enquiries are made well in advance to establish that there will be no issues in obtaining cover, especially if investigations so far have identified any level of flood risk.

Even if you are purchasing a leasehold property, if the landlord is no longer able to insure for flooding, you may have to cover the costs of making good any flood damage. Depending on the wording of the lease, you could still have to pay rent for a period where you cannot occupy the property because of flood damage.

In flood risk areas, insurers may refuse to offer cover, increase the premium or increase the excess. Some buyers may not proceed with the purchase or negotiate the purchase price as a result of difficulties with insurance. Buyers who require bank funding may not have a choice, as some lenders could decide not to lend on a property that poses such a risk.

These are all factors to consider when making the decision on whether to proceed with purchasing a property in a flood risk area. This is especially important given that a potential buyer may not be willing to risk purchasing the property from you should you wish to sell in the future.

 

Nataleigh Adamson of Goodman Grant Solicitors – contact on na@goodmangrant.co.uk

 

For more information visit www.goodmangrant.co.uk or contact your nearest office:

London: 0203 114 2133

Leeds: 0113 834 3705

Liverpool: 0151 707 0090


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