Market Watch Newsletter - Lockton...
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@LocktonREAC www.LocktonREAC.co.uk Market Watch Newsletter Lockton Real Estate & Construction October 2016
Transcript of Market Watch Newsletter - Lockton...
@LocktonREAC www.LocktonREAC.co.uk
Market Watch Newsletter Lockton Real Estate & Construction
October 2016
As we go to press with our October edition,
the summer seems to have been fighting its
customary rearguard action, with many parts of
the UK enjoying an Indian summer through much
of September.
But though the days may be getting shorter,
the immediate chill of June’s unexpected vote
to leave the EU appears to have died away, with
some degree of confidence returning to the
market.
Uncertainties, of course remain, and the longer
term effects of the Brexit process will take quite
some time to play out. But, dare we say it, so far
so not so bad!
In this issue we feature contributions on topics as
diverse as the forthcoming Riot Compensation
Act 2016, the importance of acting courteously
in right to light disputes, and how taking direct
control of the insurances protecting your
construction projects can help developers avoid
many of the problems that may otherwise arise.
There’s also an update on this summer’s Property
Issues Seminar and news of Zurich’s hard
fought triumph in our annual charity football
tournament.
If you would like further information on any of the
topics covered in this issue, please get in touch
with a member of our team at Lockton Real
Estate & Construction or email us on
[email protected] Steve Bracey,Managing PartnerReal Estate & Construction
Tel: +44 (0)20 7933 2193Mobile: +44 (0)7803 005 035Email: [email protected]
WELCOME TO THE LATEST ISSUE OF OUR MARKET WATCH
NEWSLETTER
This newsletter does not purport to be comprehensive or to give legal advice. While every effort has been made to ensure accuracy, Lockton
Companies LLP cannot be held liable for any errors, omissions or inaccuracies contained within the document. Readers should not act upon
(or refrain from acting upon) information in this document without first asking further specialist or professional advice. A division of Lockton
Companies LLP, authorised and regulated by the Financial Conduct Authority. A Lloyd’s broker. Registered in England & Wales at The St Botolph
Building, 138 Houndsditch, London, EC3A 7AG. Company No. OC353198
HAVE YOUR SAYIf you have any comments on this edition of our newsletter or would like to contribute an article to a future edition, please contact us at [email protected]
The existing rules of what is loosely referred to as “riot compensation” were widely reconsidered following the events of August 2011. More than 48,000 local businesses suffered heavy losses as a result of an outburst of rioting in several English cities after the shooting of Mark Duggan by police in Tottenham. Insured and uninsured claims in London alone amounted to roughly £300 million. Consequential losses (such as loss of rent and lost profit) reached a staggering £100 million across the UK.
The significant sums paid by police authorities in response to claims made under the Riot (Damages) Act 1886 raised questions about how effective a piece of 19th century legislation was in dealing fairly with damage caused by 21st century social unrest while protecting public resources at the same time. Not least the initial success of the insurers of the Sony warehouse in establishing at Court of Appeal level that consequential losses were recoverable under the 1886 Act (a decision that was subsequently overturned by the Supreme Court ([2016] UKSC 18)) prompted Westminster to come up with a significantly tighter legislative framework for the future.
Key Changes
The Riot Compensation Act 2016 received Royal Assent on 23 March 2016, although the operative provisions will come into force by statutory
instrument at a time yet to be determined. It will bring about the following fundamental changes:
• repealing the 1886 Act in its entirety
• introducing a £1m cap per “valid” claim
• excluding all types of consequential loss (save for alternative accommodation costs)
• introducing a new exemption from liability where a riot has occurred in “secure” facilities (such as prisons, immigrant detention centres)
• extending the class of applicable properties to include semi-permanent structures (such as caravans and houseboats)
Furthermore, the 2016 Act contains various provisions that allow the Secretary of State to manage claims centrally by establishing a “riot claims bureau” and delegate their handling to professional firms of loss adjusters – which is probably a good thing that will bring about more efficiency and consistency across the land.
A NEW AGE OF RIOT COMPENSATION
A NEW AGE OF RIOT COMPENSATION
Looking ahead
While the new legislation clarifies some aspects of riot compensation law, it produces more questions elsewhere. For example, how will the £1m cap be applied where damage to one affected “property” could potentially be broken down and presented as multiple claims to circumvent the limit? The 2016 Act also seems to leave open the question of what type of “conduct” on the part of a claimant can and will be taken into account when fixing the amount of compensation offered. Are “general” precautions expected, or only those that should and can reasonably be taken in response to a looming riot?
It is likely that litigation will produce some of the answers, although this is unlikely to happen for a while since riots are – fortunately – not a frequent occurrence in this country. However, this won’t help all those interested property owners and their insurers to prepare in the short and medium term. Whether the outright exclusion of consequential losses and the £1m cap will result in reduced availability of riot insurance altogether remains to be seen. Although the Act is certainly good news for the taxpayer, it isn’t necessarily for those whose property is damaged by rioters after the Act has come into force.
If you wish to understand the key changes further or require legal advice, please contact Ben Aram who will be happy to assist.
Ben Aram, PartnerKennedys Law LLP
Tel: +44 20 7667 9490Mob: +44 7703 477 707Email: [email protected]
Right to light disputes are a perennial bugbear for developers. Complaints from the owners of adjoining properties that a proposed development infringes - or will infringe - their right to light are all too common. One recent right to light dispute, however, casts an interesting new light, if you’ll forgive the pun, on the courts’ decision-making processes in such matters.
The case of Ottercroft Ltd v Scandia Care (B2/2015/1149) first arose when the developer, Scandia, was working on a small mixed-use development comprising residential flats above a ground floor cafe in High Wycombe, as part of which it proposed to replace an existing wooden fire escape with a new metal staircase.
Ottercroft, owners of a restaurant next door to the redeveloped cafe and flats, complained that the new staircase would block its light. Ignoring a threat of legal action if the change went ahead, Scandia waited until a time when there was nobody on the restaurant premises and went ahead with the disputed staircase.
When Ottercroft subsequently carried out its threat to seek an injunction against Scandia, the judge initially ruled that the out of hours construction of the staircase and the breaking of a previous undertaking not to infringe the claimant’s right to light constituted sufficient justification for granting the injunction sought.
When Scandia appealed this ruling, the Court of Appeal upheld the original decision. Whilst the dispute should in theory have been capable of resolution via a modest award by way of compensation (calculated at under £1,000), the court held that the defendant’s heavy-handed manner justified upholding the injunction, which required remedial work costing around £6,000.The case should serve as a reminder that - just because a development has been completed - it does not automatically mean that a financial award will take the place of an injunction.
One notable High Court case in 2010 (HKRUK II (CHC) Ltd v Heaney) saw an injunction granted that required a completed development to be scaled back, despite the fact the development was complete and the claimant had been offered around £23,000 in compensation.
Although the general consensus appears to be that damages are a preferable solution to right to light disputes where works have already been completed, this is clearly not to be relied upon, as perhaps the defendants in Ottercroft v Scandia may have assumed.
To all appearances, it was ultimately Scandia’s unneighbourly conduct that swung both the original and appeal decisions against it. In this sense, the case shows that a developer’s conduct and behaviour will be taken into consideration as part of the court’s decision making process in ascertaining whether an injunction should be granted.
Whether Ottercroft Ltd v Scandia is in any way indicative of a shift towards the granting of post-development injunctions is questionable, and ultimately each decision is highly fact specific. However - all things being equal - developers would be well advised to remain on good terms with their neighbours whose right to light they may risk infringing, wherever possible.
Simply keeping your neighbours informed of your plans over time will significantly reduce the potential for conflict and the likelihood of an injunction being granted should the case arrive in court.
For further information or advice, please contact Mike Lewis.
Mike Lewis, Legal DirectorClyde & Co. LLP
Tel: +44 (0)20 7876 5389 Mob: +44 (0)7595 777 938Email: [email protected]
COMMERCIAL CRIME
A newly insolvent contractor may have been facing financial difficulties for some time. So it’s important to double-check that they have actually purchased the insurance they were responsible for, whether they have kept up with the premiums, and whether they may have cut any corners that could have breached the conditions of - and thus invalidated - any policies in place.
If any claims have been made on the insurance put in place by a contractor who has since gone under, sums paid out by insurers could now be tied up in their administration. As an unsecured creditor, you may never receive a meaningful proportion of claims settlements made in the run up to the contractor’s insolvency.
If you are expecting a replacement contractor to insure the works going forward, you will still need to consider how to bridge the period prior to their appointment. Leaving any gaps in cover on any of your development projects is clearly a risky strategy.
By way of illustration, let’s take a closer look at how such difficulties can arise in practice - and how they can potentially be resolved.
A developer learned - just six weeks from practical completion on a major development project - that their main contractor was facing difficulties arranging bank finance without
You are part way through a development when your main contractor becomes insolvent or finds themselves in critical financial difficulties. Sadly, this is an all too familiar occurrence in today’s construction market, and it’s one that can leave developers facing serious problems - especially if the contractor has been responsible for insuring the works.
If it happens to you, you will quickly need to work out whether and how works carried out by this contractor can now be insured: who will be responsible for arranging cover, what will it cost, and on what terms - if at all - will insurance be available?
DEVELOPERS: TAKE CONTROL OF YOUR CONSTRUCTION INSURANCES
THE LINKING OF FINES TO TURNOVER IS ONE OF THE MOST SEISMIC CHANGES TO HIT OFFENDERS IN A GENERATION
it would be unable to continue operations. The crux of the problem was that the contractor’s insurance did not meet the bank’s lending requirements. With the entire development in danger of grinding to a halt, the developer contacted Lockton. Placing project insurance part-way through a development is never an easy task, but ultimately we were able to arrange a policy that included one year’s backdated cover and which satisfied the bank’s requirements. This allowed the development to be completed without disruption.
It is not only contractor insolvency which causes problems when the developer is not in control of the insurance programme, however, as the following examples demonstrate.
On one occasion, a dispute arose between the developer and the contractor as to whether the point of practical completion had been reached. The developer argued that a specific issue with the build meant that it hadn’t, but the contractor took a different view, and in the meantime the insurance they had put in place lapsed. By the time senior staff at the developer’s office became aware of the issue, a £30m development had gone uninsured for 22 days. Fortunately, no loss event occurred during this period and, once alerted, Lockton was able to put cover quickly in place. It is to avoid precisely this type of situation that when Lockton is involved in arranging construction insurance we ensure a seamless transfer of cover from the construction to the operational phase.
Another construction project saw disagreements arise between the developer, contractor and subcontractor when a structural collapse led to a major insurance claim. Wrangling over who was at fault led to significant project delays, which ultimately cost the developer money. This highlights another of the key advantages of having the developer control all insurances on a project: this ensures the policy will respond, regardless of who is at fault, thus saving time, trouble and expense for all concerned.
Another recent case involved a contractor’s insurers refusing to pay a claim, on the basis that the contractor had breached a fire condition precedent on the policy. Unable to cover the loss from their own resources, the contractor
subsequently went into administration - throwing the entire future of the development into doubt. This illustrates the value of broadly worded cover which - like Lockton’s policy wording - does not include condition precedents.
Delays following a major construction phase fire led to significant losses for another developer client of Lockton. Because the contractor had responsibility for arranging insurance, there was no cover in place for loss of revenue - for the simple reason that contractors cannot insure this risk. Nor could liquidated damages be levied against the contract (a JCT form of contract in this case) because, since the loss resulted from a specified peril, the contractor automatically gained a time extension. Again, a single policy controlled by the developer could have avoided this problem by including cover for project delays.
The preceding examples illustrate the many advantages of having all insurance on a project controlled by a single party, the developer. This removes many unwelcome variables from the equation and drastically reduces the potential for losses to fall between the cracks. Should a developer wish to replace their main contractor - because a dispute has arisen, for example - having all insurance under the developer’s control avoids the many uncertainties and difficulties they could face if the insurances were under the incumbent contractor’s control.
For all of these reasons, we recommend that developers take control and put broadly worded insurance in place to protect their projects. If you would like to learn more about this, speak to your usual Lockton contact and we will be pleased to help.
David LyleSenior Vice President
Tel: +44 20 7933 2066Mob: +44 7769 243 416Email: [email protected]
LOCKTON CONTINGENT & SPECIAL RISKS PRACTICE
Lockton Contingent & Special Risks offer wider insurance and risk management solutions to our real estate and developer clients, prospective new clients, partners, funders, solicitors and consultants on risks such as, but not limited to, right to light, defective title (including multi territory), judicial review and access rights.
Introducing the Practice
Ian Blackadder Partner - Practice LeaderT: +44 (0)20 7933 2764M: +44 (0)7795 800 494E: [email protected]
Jonathan HackettSenior Vice PresidentD: +44 (0)20 7933 2781M: +44 (0)7507 808 175E: [email protected]
Alex FullerVice PresidentD: +44 (0)20 7933 2551M: +44 (0)7950 203 183El: [email protected].
com
Phillip HawkinsVice PresidentT: +44 (0)20 7933 2073M: +44 (0)7970 837 361E: [email protected]
Adam PurseyVice PresidentT: +44 (0)20 7933 2938M: +44 (0)7468 485 255E: [email protected]
Ian LewisAccount ExecutiveD: +44 (0)20 7933 2564M: +44 (0)7989 565 953El: [email protected]
Sam BakerAccount HandlerD: +44 (0)20 7933 2092 M: +44 (0)7919 146 306El [email protected]
Lauren AllardSenior Claims Code ExecutiveD: +44 (0)20 7933 2225M: +44 (0)7721 117 988El: [email protected]
Ben RaffertyAccount Executive D: +44 (0)20 7933 2194M: +44 (0)7912 628 852El: [email protected]
UPCOMING EVENTS
Property Issues Seminar19 October 2016, Lockton - St Botolph Building
We are pleased to announce the speakers for the second of our three property issues seminars this year, as follows:
• Simon Jenner, Executive Director Battersea Power Station “Battersea Power Station, redeveloping one of London’s most iconic buildings”
• Forbes MacPherson, Director Predevelopment Stanhope Plc “The Transformation of BBC Television Centre”;
• Luke Wainwright, Director CORE “10 Fenchurch Avenue. A major new office destination for the City of London”.
Agenda:
09.00 – Registration
10.00 – Presentations
12.30 – Hot Buffet Lunch
In order to secure your place at our seminar and to ensure you don’t
miss out, please contact Rebecca Copley on 020 7933 2520 or email
UPCOMING EVENTS
MIPIM UK
The following members of Lockton Real Estate & Construction (LREAC) will be attending the MIPIM UK conference in October:
19-21 October 2016, Olympia London
James NorrisVice President
T: +44 (0)20 7933 2308M: +44 (0)7836 354 940E: [email protected]
Richard Lockyer Vice President
T: +44 (0)20 7933 2307M: +44 (0)7824 609 764E: [email protected]
Himesh Patel Business Development Executive
T: +44 (0)20 7933 2788M: +44 (0)7920 410 431E: [email protected]
Please do not hesitate to contact James, Richard or Himesh to discuss any insurance and risk management requirements for your UK and international investment and development portfolios.
UPCOMING EVENTS
EXPO REAL 2016
Lockton Real Estate & Construction (LREAC) will be attending the 18th EXPO REAL International Trade Fair for Property and Investment again this year. If you would like to meet with a member of the LREAC team, please contact us on the details below:
October 4-6, 2016 - Munich Germany
Steven RustPartner
Tel: +44 (0)20 7933 2459Mob: +44 (0)7901 [email protected]
Ian BlackadderPartner
Tel: +44 (0)20 7933 2764Mob: +44 (0)7795 [email protected]
Jonathan HackettSenior Vice President
Tel: +44 (0)20 7933 2781Mob: +44 (0)7584 [email protected]
UPCOMING EVENTS
STUDENT ACCOMMODATION CONFERENCE 2016
7th December 2016
LREAC will once again be sponsoring the Student Accommodation Conference this year. The conference is taking place at Central Hall, Westminster, and will be attended by Ben Warman, Rachel Norris and Jonathan Hackett.
If you would like to meet Ben, Rachel or Jonathan, please contact us on the details below, or email Leanne Foot on [email protected] or call 020 7933 2219 to arrange a convenient time.
Ben Warman Partner
T: +44 (0)20 7933 2623M: +44 (0)7810 815 863E: [email protected]
Rachel Norris Vice President
T: +44 (0)20 7933 2353M: +44 (0)7825 503 413E: [email protected]
Jonathan Hackkett Vice President
T: +44 (0)20 7933 2781M: +44 (0)7507 808 175E: [email protected]
HIGHLIGHTS FROM RECENT EVENTS
Property Issues Seminar Wednesday, 15th June 2016
Our Property Issues Seminar was hosted on 15th June 2016 and we
hope that our guests enjoyed the presentations given by our guest
speakers: Shmuli Simon (integrity), Elemi Atigolo (Clearwater Wealth Management & St. James’s Place Wealth), Chris Ives (Eversheds).
Presentation topics included: the effect Brexit could have on the
property market; the Insurance Act; Real Estate Investment Fund
Restructuring; and the life in the day of a Leasehold Lawyer.
We would like to thank the presenters for their valuable time in
preparing and delivering these presentations. Our next Property
Issues Seminar will be held on Wednesday 19th October 2016. To
reserve your place, please contact Rebecca Copley at
From left to right: Paul Feldman (Lockton Real Estate & Construction), Shmuli Simon (integrity), Elemi Atigolo (Clearwater Wealth Management & St. James’s Place Wealth), Chris Ives (Eversheds) and Andrew Hillier (Dual Asset Underwriting)
Charity Football TournamentFriday, 27th May 2016
On Friday 27th May 2016, the Lockton Real Estate & Construction team
hosted their annual charity football tournament in aid of Lockton’s charity of
the year The Brain Tumour Charity, raising £3,500 for the charity.
The five-a-side football tournament, which was held at Powerleague London
City venue, drew in 15 strong teams from the insurance market. This year’s
semi finalists included Zurich, AIG, HSB and RSA, but in the final Zurich
claimed victory over HSB with a 3-1 win.
Steve Bracey, Managing Partner of LREAC, said “This is always a great event
and we had a particularity fantastic turn out this year. I would like to thank
everyone who participated, whether they played, supported or sponsored. We
are extremely grateful for everyone’s support as this has raised much needed
support for The Brain Tumour Charity.”
