A lot of larger property projects require funding and borrowing money is fairly normal practise. Having contract works insurance in place will give lenders some comfort and can help you gain that all important funding that you need.
One of the most popular types of contract works insurance is a combined policy consisting of public and employer’s liability insurance. This includes contractors all risk insurance which covers the length of the project and the costs involved. This covers the people company owned plant and machinery and hired in plant also.
If there is any damage caused it could have a massive financial impact causing a company to default on its loan payments. This is why so many lenders are insisting that propery projects have contract works insurance in place. It will cover any claims made and give lenders the assurance that payments will still be made in this case.
Getting the Right Contract Works Insurance Cover
It’s not enough to just opt for the cheapest policy you can find. You may find that lenders will go back and forth until they are happy that you have adequate cover in place. Any lender will do their due diligence checking that the relevant parties are noted on the policy, this includes the employer, building contractor and the lender themselves. Most lenders will insist that they are placed as a first loss payee on the policy, it may not be enough to have them as a noted interest only. It could take some negotiation to get the balance right for both parties.
Whilst many contractors have contract works insurance in place, this isn’t always good enough for lenders. Mainly due to having no control over that policy and being unable to be listed as a first loss payee. Because they have no control the building contractor could get into difficulties and be unable to cover payments for their insurance cover. The developer may not be away that there is no longer insurance in place. Then worst case the building contractor could go into liquidation. This is risky for a lender as any losses would have to be covered by the developer themselves, meaning that the loan payments could halt with little chance of regaining lost monies.
So, you can see it can be a complicated situation, much more so than you may think. This is why it’s always best to speak to a specialist insurer that has a long and experienced background in providing contract works insurance. They will be able to quickly ascertain the type of insurance you need, resulting in much less to-ing and fro-ing between developer and lender.