Given the current weather and series of storms the country is having to brace, it seems poignant to look at the risks when purchasing a property within a flood risk area.
Over the years, we have seen environmental reports flag up the possibility of the area being susceptible to flooding more and more as flood episodes become increasingly unpredictable. This can make the possibility of using bank security to purchase the property more difficult to obtain, it may make it difficult to obtain insurance and 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 as to the availability of insurance for the property as early into the transaction as possible.
There are several types of flooding that could occur including surface water, sewer, groundwater, river and coastal. Your property may be situated in mainland and not near a river or coast but 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, introduced by the government in April 2016 and available until 2039. This scheme offers insurance at a set price to those residential properties that are within high flood risk areas. There are requirements that do need to be met though in order to benefit from this and one of the main points to consider is that the policyholder, or their immediate family, must live in the property which means that buy to let properties that are 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 which 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?
- Does the lease have 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
- As a landlord, can you obtain insurance for loss of rent
- Putting a flood plan in place
In conveyancing transactions and when acting for a buyer, tenant or lender, as legal advisors, we will always consider the risk of flooding. There are various ways to ascertain if there is a flood risk and what level of risk that poses. These can come at different costs and are borne by the buyer or tenant of the property in question. Information is available from the following sources:
- Environment Agencies website (this does give information on groundwater flooding). This website has access to maps which can show the risks of River and Sea flooding, Surface Water flooding and Reservoirs. These maps should not be used as the only method of investigation.
- HM Land Registry Flood Risk Indicator. This is for registered properties only and can be purchased through their online portal. This has indications on flood risks from rivers and the sea for defined areas. Again, this should not be used as the sole means of assessing the level of flood risk.
- Screening reports. These are non-property specific reports which are based on the area that the property is located. These reports use information from the previously mentioned agencies as well as British Geological Survey and Natural Resources Wales. It is likely that the result of these reports would highlight the need to investigate further.
- Commercial Searches. There are a wide variety of commercial searches available which have differing levels of information. Search providers will give information as to what each report contains and then the most adequate search should be requested. As the market for flood searches is not regulated, it is not easy to establish which sets of data is being used, how accurate the data is and how up to date the data is. Flood searches are also available as a single search type to give an assessment of the risks related to flooding. It is important to note that solicitors and other legal advisors are not qualified to advise on technical matters regarding the search results and enquiries should be made of a surveyor if there are any technical questions.
In TA6 for residential properties and CPSE1 and CPSE7 for commercial properties, there is a question relating to flooding. It asks if the property has ever suffered from flooding and to provide details. It would be prudent to expand this enquiry in additional enquiries to see if the seller is aware of any flooding in the ‘area’. These replies should be solely relied on but may highlight a need to make further investigation.
If a buyer wishes to, they could instruct a specialist survey from a suitably qualified professional of 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 usefully they may also be able to offer information about the steps that can be taken to mitigate exposure to flood damage. If a Flood Risk Report is drawn up by the surveyor who is suitably qualified and independent before and after installation of flood resistance and resilience measure, this report could be provided to a prospective insurer is insurance cover flood risk is difficult to obtain. The insurer may consider the flood protection measures when they assess their offer of insurance.
If flooding does occur and causes damage to the property, this will undoubtedly be a difficult time. It is therefore important to ensure that you have the peace of mind knowing that there is insurance in place. In most transactions, a buyer is responsible for insuring the building from the exchange of contracts. It is therefore vital that enquiries have been 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, this may result in you having to cover the costs of making good any flood damage. Depending on the wording of the lease, you may 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 payable. Some buyers may consider not to 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 may decide not to lend on a property that poses such a risk. When making the decision whether to proceed with purchasing a property in a flood risk area, you must not only consider your ability to pay a higher premium or have enough funds available to pay a high excess, you also need to consider your ability to sell the property in the future as a future buyer may not be willing to take the risk.