Cities in the sky - the benefits and risks
As a property developer you may be aware of the trend in construction of tall towers and the potential they have in addressing the housing shortage.1 And, with a lack of land available for building in urban areas, it’s clear to see why you’d consider moving with the times to tap into this emerging trend.
In recent years, there’s been an increase in the number of high rise buildings proposed and approved for construction in the UK. The UK development pipeline currently stands at around 500 buildings, of which over 85% are planned in London, while the rest are clustered in key cities such as Birmingham, Liverpool, Manchester and Salford.2
While these new builds provide space for residents and offices, constructing upwards is not without considerable risk. Building a tall tower is complicated, heightens many traditional construction dangers, and presents issues unique to these projects. Property developers need to be aware of the risks linked with tall tower construction and take steps to mitigate losses that could occur.3
Tall tower construction risks
There are a number of risks that you need to be aware of, some of which can be transferred via insurance to mitigate the impact of potential issues.
- Fire - a fire on site could be fatal and cause irreparable damage or loss
- Escape of water - flooding can cause dangerous conditions for the build itself as well as delays and financial impacts
- Rail - building near railway lines increases the threat of disruption and injury to the general public
- Proximity to neighbours - danger and obstruction for nearby residents or businesses
- Obstruction of light - rights of light issues can be very costly and time consuming to resolve
- Delays - construction delays can have significant financial impact on your business
- Environmental - piling work to support tall buildings can impact ground water sources
- Cladding/facades - defective materials can cause severe damage if they’re not fit for purpose
- Defects - defects during or after construction can have major implications on future budgets and timescales
- Archaeological finds - a discovery could delay a project significantly while investigation is carried out and assessed
- Flight risks - using cranes can have an impact on flight paths if the site is near an airport
Most of these are likely to affect new build construction. But one of the key parts to think about when constructing new buildings is defects, specifically latent defects. Structural defects in a building can appear months or years after completion due to poor design, workmanship, or materials.
Latent defect insurance
The discovery of a defect long after construction can have damaging financial implications for your business. Latent defects insurance (LDI) allows you to transfer the risk to an insurer. Even though LDI is compulsory for residential construction, it isn’t for commercial projects. If your construction projects are commercial, there are many reasons why you should consider LDI:4
Latent defects examples
- Defective basement tanking allowing water penetration.
- Inadequate wind-posts or wall ties causing movement and damage to walls.
- Under-strength concrete or misplaced reinforcement allowing movement and damage to the structure.
- Inadequate foundations causing subsidence of the building.5
LDI benefits / Latent defects insurance benefits
- It saves time and money. By removing the time delays and legal costs in proving fault/negligence and pursuing the relevant parties of the construction contract in order to remedy any defects.
- It can remove fear of contractor insolvency. LDI is an upfront cost, and is non-renewable; it’s not affected by the subsequent insolvency of any member of the construction or professional team. The same can’t be said about the contractor’s collateral warranties, or their professional indemnity (PI) insurance.
- It is attractive to tenants. Developers looking to increase their properties’ attractiveness are more likely to offer their tenants full cover for defects in the form of LDI.
- It can future proof your investment. The policy can help smooth the process of future sale/tenancy agreements, as it’s freely assignable to future tenants or purchasers and lasts for 10 years post completion.
In some cases, the risks associated with constructing tall towers are not fully considered until it’s too late, and developers and contractors should be giving considerable attention to this highly specialised area of risk. If something does go wrong during the construction phase of a tall tower, it has the potential to be catastrophic, from a damage, liability, and delivery perspective. It is therefore critical at the outset of a project that the correct construction insurance advice is sought and a sound risk management strategy is adopted and implemented into the overall programme.3
As a property developer or property investor it makes sense to ensure your properties are fit for purpose and include protection against unforeseen issues. Your business could be in jeopardy if you’re unable to cover the cost of rectifying a latent defect in one of your properties.