A note on the methodology for undertaking a reinstatement valuation of buildings for insurance purposes
When undertaking a reinstatement valuation exercise for insurance purposes it is important to understand the distinction between building assets and contents assets.
As a company, we regularly value buildings, general contents, plant and equipment assets for our clients. One of the common reasons why clients are often incorrectly insured is the incorrect classification of assets. The incorrect classification of assets can lead to double counting, or worse the complete omission of assets from the insurance valuation exercise.
Rushton International provides a reinstatement valuation service that includes the valuation of building, plant and equipment assets. Our valuers are experienced in valuing assets for insurance and financial purposes and understand the correct approach to adopt when valuing these assets.
The buildings valuation should include assets that are installed primarily to provide service to the building (building service or HVAC). A buildings valuation would include the following building service or installation:
- Electricity
- Gas
- Water
- Space heating and hot water
- Air conditioning and ventilation
- Fire and safety, drainage
- Lifts and gantries
- Structures (including chimneys; plant housings; pits; stagings and mezzanine floors; internal buildings; permanent partitions; railway track; bridges and housings for conveyors; fences)
- Communications cabling
A note on General Contents, Plant and Equipment Valuations
A valuation of plant and equipment would include any production or commercial assets that are used as part of the commercial process or services provided by the building occupier. Contents, plant and equipment may broadly be divided into the following categories:
- Plant – assets that are inextricably combined with others and may include items that form part of the building services installations specialised buildings, machinery and equipment.
- Machinery – individual, or a collection of, machines that may have been installed wholly in connection with the occupiers’ industrial or commercial processes (a machine is an apparatus used for a specific process in connection with the operation of the entity).
- Equipment – other assets such as furniture and furnishings, tenants’ fixtures and fittings, vehicles and loose tools that are used to assist in the operation of the enterprise or entity.
Specific Guidance on inclusions and exclusions – Landlords’ insuring responsibility
When undertaking a valuation of an office building it is important that the valuation correctly includes the elements (shell and core together with the landlord fit-out works) that are the insuring responsibility of the landlord, even if they are low in value compared with the overall reinstatement value of the building structure.
As part of our valuation service, we hold discussions with clients prior to completion of the valuation to understand their insurance obligation. For complex properties with various interested parties, we can review the insurance requirements in the leases to confirm the approach needed and reinstatement allocation as per the terms of the lease.
