The latent defects market has recognised the significant investments made in the BTR sector and has responded with tailored policies that support and enable developers over the short and long term.
In the past, developers seeking first-party insurance would typically choose a commercial latent defects policy, but this option proved inflexible if the developer or owner wished to realise capital appreciation a few years after completion.
Now, developers and funders involved in BTR and PRS schemes have a wider range of provider options that offer a UK finance approved policy.
This ensures that if a fractional sales strategy is desired, the policy can be amended to enable a unit-by-unit sell-off.
Developers who have adapted their exit strategy by embracing the shift from traditional BTS models to BTR, are now placing a laser-focus on securing appropriate insurance coverage.
Such a policy not only protects the structural integrity of the asset but also offers flexibility in the event of a future fractional sell-off.
Funders are recognizing the significance of having first-party insurance coverage in place, rather than solely relying on collateral warranties.
It is crucial to review the financial limit of a latent defects policy when selecting a provider.
Not all policies are equal, and some providers may have an inner limit of, for instance, £25m.
On a £100m project the policy would only cover 25% of the total reinstatement cost — hence it's essential for developers to understand the specifics of the policy and what it offers before investing their money.
As always, the devil is in the details.
Although many aim to adopt a long-term strategy for emerging projects, developers and funders which have received sound guidance and implemented the right policy, will be better placed to adapt to the change, should the need arise.
