By George Baker, Compliance Manager
At Pure Block Management, compliance and protection of our clients’ assets are at the heart of what we do.
One area that is often overlooked but carries significant legal and financial consequences is ensuring buildings are insured for their full reinstatement value through professional Building Reinstatement Valuations (BRVs) -often referred to as Reinstatement Cost Assessments (RCAs).
What the law says
- The Landlord and Tenant Act 1985 – This requires leasehold properties to be insured for their full reinstatement value—the cost of completely rebuilding the property—not its market value.
Failure to meet this requirement may constitute a breach of lease, with leaseholders entitled to challenge the freeholder, Residents’ Management Company (RMC), or Right to Manage (RTM) company at a First-tier Tribunal. - Lease Agreement - Almost all residential leases include clauses obligating the freeholder, RMC, or RTM to maintain adequate building insurance. Not doing so risks breaching the lease and exposes directors to significant liability.
Why Reinstatement Valuations Matter
Insurers typically recommend that a reinstatement valuation is carried out every three years. However, certain circumstances—such as major refurbishment works or sharp rises in construction costs due to economic inflation—make it prudent to review more frequently.
Without regular valuations, the risk of underinsurance grows considerably.
The Risks of Non-Compliance
Our insurance broker highlights three key dangers. These are:
Underinsurance
Over 75% of UK buildings are underinsured.If a claim is made, insurers may apply the Condition of Average, reducing the payout in line with the level of underinsurance.
For example, if a block is insured for only 50% of its true reinstatement value, a £50,000 claim may only return £25,000—leaving leaseholders to cover the shortfall.
Legal Liability
Directors of RMCs or RTM companies may be held personally liable for any financial shortfalls caused by underinsurance.
This risk highlights the duty of directors to take proactive, documented steps to maintain adequate cover.
Mortgage and Sale Issues
An incorrect valuation can affect leaseholders’ ability to sell, remortgage, or even secure a mortgage on their property.
Mortgage lenders often require evidence that adequate insurance is in place before approving finance.
Real-World Example: A Block in Hull
When Pure Block Management took over the management of a 20-unit purpose-built block in Hull, one of the first priorities was reviewing the building’s insurance arrangements.
A professional reinstatement valuation revealed that the block had been underinsured by around 30%. Had this not been identified and rectified, any insurance claim would have been significantly reduced under the Condition of Average clause.
Shortly after the valuation was updated, the building experienced water ingress, resulting in a claim of £15,000. Because the reinstatement valuation had been carried out, the claim was settled in full. Without it, the RMC would have faced a £4,500 shortfall, leaving leaseholders to cover the difference.
The directors of the RMC were relieved and grateful, recognising that without Pure Block Management’s proactive approach, they could have been personally exposed to liability and the leaseholders significantly out of pocket.
The Outcome
By maintaining accurate and up-to-date reinstatement valuations, our clients achieve:
- Compliance with the Landlord and Tenant Act 1985 and their lease obligations.
- Financial security in the event of a claim, avoiding costly shortfalls.
- Peace of Mind for directors, leaseholders, and lenders alike.
At Pure Block Management, we see Building Reinstatement Valuations not just as a compliance requirement, but as a cornerstone of responsible block management. They protect people’s homes, investments, and financial futures.
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