Environmental reports and property insurance

Environmental Reports

For some years now, Hornbuckle Mitchell Trustees Limited (HMTL) have been required to use environmental screening reports to ensure that new property being purchased has (as far as we can be sure) not been involved with adverse historic site activities. These reports are cost effective (£260 +VAT)* and provide comprehensive environmental information that allows purchasers to make rigorous and consistent enquiries into the history of a site. The risk management process requires all future purchases to be supported by a pre acquisition environmental screening report.

Unfortunately, these reports do not offer protection against changes in legislation or third party (adjacent site) contamination risk. So the only real solution to remove such liabilities is to seek to insure against the risk.

* Please note: report prices will change as the area increases, more details are given below

Properties up to 2 Hectares (4.9 acres) = £260 + VAT
Properties from 2 Hectares to 5 Hectares (12.3 acres) = £295 + VAT
Properties from 5 Hectares to 10 Hectares (24.7 acres) = £340 + VAT
Properties above 10 Hectares = Price on application
 
Environmental and Property Insurance

As the independent trustee, it is the responsibility of HMTL to bring to your attention circumstances or events that it is believed may add potential liability beyond the usual commercial risks associated with a scheme owning commercial property. Please refer to Part 11A Environmental Protection Act 1990. This is based on HMTL’s understanding of the prevailing legislation. However, it is recommended that you make your own enquiries with your own legal advisor.

What is not generally understood is that standard material damage property policies and public liability policies (buildings insurance policies) for property owners contain specific exclusions for gradual pollution arising from historical contamination. This means that unless you have a site specific environmental insurance contract in place now, environmental risk cover is only provided for sudden and accidental pollution only.

It follows therefore that if there were a contamination incident on a site and in the absences of appropriate insurance protection and once scheme assets had been exhausted the balancing liability would fall on the trustees.

Because of this uncertainty and our responsibility as Trustees to preserve members’ benefits, it is appropriate to notify you of positive changes HMTL have been advised to make to manage such risks. These additional precautions by way of risk transfer will result in clients’ interests being protected against such risks and protecting the current and long term value of members’ scheme assets as well as avoiding personal liability.

Insuring any property on a stand alone basis can be expensive. HMTL know from discussions held with some member trustees the frustration they have experienced in arranging adequate and appropriate property owners cover (buildings insurance) on their site due to its physical location (postcode) or proximity to a perceived non standard risk.

Adverse claims experience of many insurance providers of late is making them nervous to the point of reducing the scope of cover they have historically provided.

For example, some members have been unable to secure flood damage protection within their contracts without spending considerable sums putting in flood defence barriers. Clearly this is not the way to continue when a solution exists that all schemes and their members can benefit from.

Due to the size in financial terms, the geographic spread and the diversity of the property types HMTL have within our SSAS and SIPP schemes, insurers are willing to accept the total portfolio without the exclusion of cover that might prevail on a site by site basis. This has been arranged by an experienced company dealing with environmental matters – Envidata – and an insurance risk specialist – Belmonte Limited.

Additionally HMTL have secured significant economies of scale and can advise that the risk transfer solution negotiated achieves the following for all properties (with a UK address) in the portfolio

  1. Historic environmental cover

    1. This effectively transfers Part11A liability away from the scheme and its trustees;
    2. For an annual cost per property of £154.38 including underwriting and IPT.

  2. Property owners’ cover with a matched premium and benefits guarantee. This means

    1. that premiums on this contract are guaranteed to be no greater than the cost of the existing buildings insurance policy.
    2. The scope of cover will not be less that what is currently on risk.

Unlike some SSAS & SIPP providers who have made the decision to close their doors to property investments, HMTL recognize that property ownership within pensions remains an important asset class in the retirement planning needs of many of our clients. In view of this, HMTL remain committed to being able to offer pension contracts that facilitate the ownership of commercial property.

However, the risks associated with property ownership and with the duty of care to the scheme members and beneficiaries, HMTL is taking uninsured risk and Part 11A liabilities very seriously, particularly when a risk transfer solution is available. The advice taken on these matters is very clear:

  • If HMTL is to continue to offer the option of investment in commercial property there must be a robust property acquisition protocol that provides checks and balances that will protect co-trustees and their scheme’s beneficiaries against avoidable environmental risk and Part11A liability.

  • Member trustees need to be aware of the existence of environmental legislation.

  • All trustees have a legal responsibility to protect scheme assets – adequately and appropriately.

  • A risk transfer solution should be used if the insurance market offers commercially viable terms.

  • HMTL has a responsibility to make sure insurance cover remains on risk.

Documentation 

The property purchase application and property guide have been amended to reflect this new proposition. Please inform your clients accordingly.

The documents below should replace others you may already have printed, they will also provide further details on the changes in our property purchase process and insurance changes.