Market Watch Newsletter - Lockton...
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June 2017 @LocktonREAC www.LocktonREAC.co.uk Market Watch Newsletter Lockton Real Estate & Construction
Transcript of Market Watch Newsletter - Lockton...
June 2017
@LocktonREAC www.LocktonREAC.co.uk
Market Watch Newsletter Lockton Real Estate & Construction
This edition includes:
As we went to press with this latest edition of our newsletter, the country was slightly less than enthralled by what looked like being one of the most predictable elections in recent history.
More arrestingly, we were still taking in the implications of the WannaCry ransomware attack that affected organisations in more than 100 countries around the world, including our own NHS.
Experts on cyber security agree that, despite its spectacular scale, this was a relatively amateurish attack and we should expect more and worse to follow. In the light of these attacks. The article on cyber risk in this issue has turned out to be especially timely!
Also in this edition, we have articles on the challenges and opportunities created by recently introduced energy efficiency regulations, and on our newly-formed specialist Due Diligence team.
Hopefully you will find something of interest and value here.
If you would like further information on any of the topics covered in this edition, please get in touch with a member of our team at Lockton Real Estate & Construction or email us on [email protected]
Welcome to the latest issue of our Market Watch newsletter
Steve Bracey, PartnerHead of Real Estate & ConstructionLockton Companies LLP
Tel: +44 (0)20 7933 2193Mobile: +44 (0)7803 005 035Email: [email protected]
HAVE YOUR SAYIf you have any comments on this edition of our newsletter or would like to contribute an article to a future edition, please contact us at [email protected]
David LyleSenior Vice President, Real Estate & ConstructionLockton Companies LLP
T: +44 (0)20 7933 2066E: [email protected]
During a fit-out within a structure, who takes the risk?
Contractors are no keener to take the risk on. Not least because their insurance will typically have been written on a standard form that assumes they will be protected when working within an existing structure.
So who should be liable for structural damage caused to a property undergoing extension or refurbishment work? Finding an insurance solution to suit employer, contractor, and (if the employer is a tenant) the freeholder, has often proved a challenge.
The standard contract, JCT (Joint Contracts Tribunal) clause 6.7, stipulates that employers are responsible for insuring the works and providing comfort to the contractor for damage caused to the existing structure and works.
In practice, things can often prove more complicated. If the employer is a tenant, they will not control the basebuild property insurance. Whoever does control it may well be unwilling to have the contractor added to their property insurance policy. It’s not hard to see why. Adding the contractor brings a potentially problematic construction element to what was purely an occupational risk.
Essentially, what we have here is a ‘hot potato’ risk that nobody wants to be left holding.
A solution may now be in sight, however. A new version of the JCT contract came out in January 2017. This allows the various parties to make alternative arrangements. No explicit guidance is provided, but here at Lockton we recommend the following:
The contract should be changed to make the contractor responsible for any damage they cause to the existing structure of the building. Their understandable reluctance to accept this can be overcome by taking out a separate third party liability (TPL) policy covering any damage arising from the works. Paid for by the employer, this separate policy can be ring-fenced, so that the contractor’s annual TPL policy is not exposed. This way, everybody’s interests are protected and the project need not be held up by wrangling over insurance arrangements.
For larger buildings with a high-reinstatement value, it might make sense to agree that the contractor will be responsible for any structural damage they cause up to a set limit (say £10m). Any damage beyond this limit can be handled through a ‘joint names’ cover provided under the existing property programme. A separate ‘Project TPL’ policy could again be taken out to cover damage up to this £10m limit.
Agreeing whose insurance should respond if a contractor damages a building they are working inhas long been one of the most contentious issues in the real estate and construction sector.
Landlords have been understandably reluctant to put their claims record at risk as they aim tocontinue capitalising on one of the most protracted soft markets for property insurance in livingmemory.
During a fit-out within a structure, who takes the risk?
Cyber Security - your business is at risk!
Peter ErcegSenior Vice President, Risk SolutionsLockton Companies LLP
T: +44 (0)20 7933 2608E: [email protected]
Cyber risk is a growing threat for all kinds of businesses today, yours included. Some real estate firms are still not fully alive to the risks they face. But it would be a mistake to assume that this is mostly just a problem for firms who trade extensively online or hold multiple client records.
Cyber Security - your business is at risk!
In reality, real estate businesses are significantly at risk from liabilities arising from the loss or theft of client data; from harm caused to tenants via the IT infrastructure in buildings they own or manage; and from a direct attack on their own operations. The threat is so widespread that it’s not a case of whether, but when, your business will be targeted.
Government statistics suggest that two thirds of large businesses in the UK were affected by some kind of cyber breach or attack last year. A major cyber attack could put your business out of action for hours, days, even weeks, and the average cost of a data breach is around £1.2m. Smaller businesses are equally vulnerable, if not more so, as they often lack basic safeguards.
As prospective tenants look for more and more sophisticated IT infrastructure and services in buildings they occupy, and as real estate owners and managers make greater use of advanced Building Management Systems (BMSs), a host of new vulnerabilities and potential liabilities arise. Security consultants Kaspersky Labs estimate that more than 40% of all Industrial Control Systems worldwide (including BMSs) showed signs of coming under cyber attack in the second half of 2016.
Meanwhile, the implementation of the Global Data Protection Regulation (GDPR) in 2018 will massively increase the burden on companies to protect client and third-party personal information, with fines of up to 4% of global turnover (or ¤20m, whichever is the greater) enforceable for breaches.
The average total cost of a breach for a UK company in 2015 was £2.37m
Average lost revenue following a data breach increased from £950k to £1.07m in 2015
The average cost per lost record increased to £104 from £95
Malicious attacks are more costly than incidents involving human error (£123 vs £90
Cyber Security - your business is at risk!
There have been a number of high-profile incidents recently involving real estate firms and construction firms, including one in which a company was targeted by more than 3,000 ‘phishing’ emails and ‘ransomware’ attacks in a single month, resulting in serious disruption to its business operations.
If your systems are hacked and you and/or your tenants are targeted, or if you experience data loss or theft, it could hurt, not just your finances, but also your reputation and business relationships - something that can be much harder to recover from. If criminals use your systems or infrastructure to target occupants of your buildings, the potential liabilities could be significant.
Some risks are more obvious than others. Cyber fraud is a clear hazard when your business transfers large sums electronically. Keeping financial and personally identifiable records secure is an obvious priority. But what if criminal hackers take out air conditioning, lifts and lighting, making one of your buildings unfit for occupation? Or, to take a more unusual example, an activist or terrorist group hacked a giant LED display on the side of one of your buildings to broadcast their propaganda.
Whether you are a property owner, a managing agent or a developer, you’ll find that the harder you look, the more ways you’ll find in which you are exposed to cyber risk. Nor does outsourcing your IT functions absolve you of responsibility for holding client and third-party data
safely. That burden rests with you, so you’ll need to understand fully what security arrangements any provider has in place - and how quickly you can expect them to restore your systems following an incident.
The good news is that insurance products now exist that can both protect you from loss and help you manage your cyber risk before you suffer harm. Better still: because this is still a developing area of the insurance market, pricing for cyber insurance cover is currently very competitive.
Taking out cyber cover can also give you access to technical specialists, on call day and night, who can act fast and effectively to minimise any resulting damage or disruption - and to PR experts who can help you contain the reputational damage that can often be one of the most painful aspects of a major cyber incident.
Lockton’s new real estate insurance due diligence team
Lockton’s new real estate insurance due diligence team
Ben WarmanPartner Member of the Lockton REAC Executive CommitteeTel: +44 (0)20 7933 2623Mob: +44 (0)7810 815 863Email: [email protected]
Ian BlackadderPartner
Tel: +44 (0)20 7933 2764Mob: + 44 (0)7795 800494 Email: [email protected]
David LyleSenior Vice President
Tel: +44 (0)20 7933 2066 Mob: +44 (0)7769 243 416Email: [email protected]
Vicky KeeneAccount Executive
Tel: +44 (0)20 7933 2070Mob: +44 (0)7931 300 949Email: [email protected]
Adam PurseyVice President
Tel: +44 (0)20 7933 2938Mob: + 44 (0)7468 485 255 Email: [email protected]
Phillip HawkinsVice President
Tel: +44 (0)20 7933 2073 Mob: +44 (0)7970 837361Email: [email protected]
Putting the necessary insurance arrangements in place around transactions in the real estate sector can often prove frustratingly complex and challenging. Failure to negotiate these complexities successfully can make or break a transaction, or turn what should have been a sweet deal into a distinctly sour one.
It was precisely to help investors, developers, lenders, law firms and other advisors operating in the real estate sector that Lockton recently put together a dedicated expert team to provide effective assistance with insurance due diligence and transaction co-ordination.
Our new Insurance Due Diligence andProject Co-ordination Services team has the full range of skills, capabilities and experience to guide you safely through even the most complex of transactions and to ensure, not simply that you get the deal done, but that risks are identified and mitigated.
Amongst other things, the team can assist you in reviewing existing
insurance programmes, and associated documentation, and assessing these in relation to actual risk, reviewing relevant third-party insurances, and reviewing claims data for indications of potential issues which may or may not be covered by current insurance provisions.
Where bank finance is involved, we can also identify and advise on areas likely to be of interest or concern to lenders, and ensure that you comply with lender requirements. We can also confirm that insurance arrangements are in line with those that property owners and developers would typically expect.
Our team can co-ordinate with thirdparty law firms and insurance brokers to ensure sufficient covers are in place around a deal - as well as arranging contingent cover solutions for real estate lending transactions. We will also highlight situations where the purchase of a specialist insurance product could enable you to conclude a transaction on more efficient or beneficial terms.
Our services are keenly priced, especially when set against the significant potential risks involved in a transaction. If you would like to know more about the highly responsive and flexible services we offer, please get in touch with your regular Lockton contact, or feel free to speak directly with one of the Due Diligence team:
Energy efficiency: challengesand opportunities
Ian LewisAccount ExecutiveLockton Real Estate & Construction
T: +44 (0)20 7933 2564M: +44 (0)7824 498 653E: [email protected]
Energy efficiency: challenges and opportunities
Energy efficiency is something real estate companies take increasingly seriously. The commercial rationale for doing so is compelling enough in its own right. But building owners, managers and developers are also coming under increasing regulatory and legislative pressure to focus on efficient energy use within their properties.
One example is Article 8 of the EU’s Energy Efficiency Directive, enacted in the UK from December 2015 as the Energy Savings Opportunity Scheme (ESOS). Its stated aim is reducing energy consumption across the EU by 20% by the end of the current decade. Firms with over 250 employees or turnover of £40m+ now face fines of up to £90,000 for non-compliance.
Another landmark on this path is the forthcoming introduction of a new minimum energy efficiency standard (MEES) through the Energy Efficiency (Private Rented Property) (England and Wales) Regulations
2015. In less than a year’s time (from 1 April next year), it will become an offence for landlords to renew existing tenancies, or grant new tenancies, for any building that has not achieved a minimum energy performance certificate (EPC) rating of E.
In many cases, landlords of properties that come within the scope of MEES will need (or have needed) to undertake a significant amount of work to upgrade affected buildings to the required minimum standard. Non compliance is not an option. From April 2018 local authorities will be able to issue penalties of up to £4,000 for domestic properties and up to £150,000 for non-domestic properties.
If you are one of the many UK property owners or managers currently looking to implement energy efficiency re-fits or upgrades, you might like to know about a new insurance product developed to protect property owners and their lenders against any shortfall in projected energy savings against the actual savings resulting from a particular schedule of works over a period from 12 to 60 months. Whereas a traditional engineering insurance policy would provide protection against material damage to assets installed and against any resulting business interruption impact, this newly developed
product also includes an element of asset performance insurance which protects building owners and their lenders against quantifiable shortfalls in energy savings realised each year.
The benefits of such a policy include removing the risk of a shortfall in the savings realised by an investment in energy efficiency improvements due to technical miscalculations or infrastructure failure. The policy can also protect loan repayments on the works carried out, improves the creditworthiness of any such borrowings, and could even reduce the rate of interest on money borrowed for energy improvements.
Events
Property Issues SeminarWednesday 14th June 2017
We are pleased to announce the speakers for the second of our three property issues seminars this year, as follows:
• Adam Watson & Kim PlantLockton Companies LLP‘The evolving risk of terrorism’
• Aidan ThomsonBerwin Leighton Paisner LLP ‘The environmental liability implications of Brexit’
• Brett Warburton-SmithLockton Companies LLP‘Cyber Security – Preparation is everything’
• Chris TregilgasCBRE Ltd ‘Fire Insurance Valuations – Is it all a load of smoke and mirrors?’
Agenda:
09.00 – Registration
10.00 – Presentations
12.30 – Hot buffet lunch
In order to secure your place at our seminar and to ensure you don’t miss out, please contact
Rebecca Copley on 020 7933 2520 or email [email protected].
Upcoming events
For more information and to reserve your space, please contact Rebecca Copley on 020 7933 2520 or by email [email protected].
Upcoming events
Lockton’s Real Estate & Construction
Charity Clay Pigeon ShootSponsored by Amlin and in aid of Breast Cancer Haven and
Lockton’s Charity of the Year The Rainbow Trust
The Real Estate & Construction team would like to invite you to enter our annual charity clay pigeon shoot taking place on Friday 29th September. You can either enter a team of four or as an individual.
In the past five years we have raised over £36,000 for charities such as Macmillan Cancer Support, Help For Heroes, Scotty’s Little Soldiers, The Brain Tumour Charity and Great Ormond Street Hospital. With the generous support from you, these charities have been able to continue their vital work and provide individuals and their families with the support that they need.
Venue: Holland & Holland Shooting Ground Ducks Hill Road, Northwood, Middlesex, HA6 2ST
Date: Friday 29th September
Time: 09.00am - 15.30pm
Cost: Team of four £1,000 Individual £250
Whether you fancy trying out a new sport or you are an expert shot, why not come along and partake in a day of fun (and a little bit of friendly competition!).
Sponsored by In aid ofFor more information and to reserve your space, please contact Rebecca Copley on:
020 7933 2520 [email protected]
Upcoming events
EXPO REAL 20174th - 6th October 2017Munich, Germany
The following members of our team will be attending EXPO REAL International Trade Fair in October .
If you wish to make contact or arrange a meeting, please use the details below:
Steve RustPartner
Tel: +44 (0)20 7933 2459Mob: +44 (0)7901 [email protected]
Ian BlackadderPartner
Tel: +44 (0)20 7933 2764Mob: +44 (0)795 800 [email protected]
Jonathan HackettSenior Vice President
Tel: +44 (0)20 7933 2781Mob: +44 (0)7507 [email protected]
Please contact a member of our team for professional advice on your real estate and construction requirements.
Highlights from recent events
Property Issues SeminarWednesday 8th February 2017
Our guests clearly enjoyed the presentations given by guest speakers:
Ian Paton and Sam Potts (Cluttons), David Ballingall (Crawford & Company, Jack Simmons (Cushman & Wakefield) and Chris Rofe and Jon Green (Lockton Companies LLP). Our sincere thanks to them for their support and contribution.
Presentation topics included: Employee Benefits for a new generation; Understanding your Flood Risk; The December Storms...an Adjuster’s story; and where next for PRS?
We would like to thank the presenters for their valuable time in preparing and delivering these presentations.
From left to right: Chris Rofe & Jon Green Lockton Companies, Sam Potts & Ian Paton, Cluttons, Paul Feldman, Lockton Real Estate & Construction, David Ballingall, Crawford & Company and Jack Simmons, Cushman & Wakefield
Lockton REAC Charity Poker TournamentThursday 9th March 2017
We held our annual poker tournament on Thursday 9th March in aid of Shelter from the Storm and Brainwave. Thanks to the generosity of the 100 real estate and construction professionals that attended, we raised £12,000 for charity.
Hosted at the Playboy Club London, 80 of the guests showcased their best poker face by taking part in the tournament, with the winners taking home a guaranteed total prize pot on the night of £3,500. Philip Steers of Cunningham Lindsey took first place, ahead of Peter Gunby of B Bailey & Co Ltd and Laurence Hill of Realys Group.
Steve Bracey, Partner and head of Lockton’s Real Estate & Construction team said: “We would really like to thank our main sponsor AXA and our table sponsors Cunningham Lindsey and Crawford & Company, as well as all our friends and clients in the real estate and construction industries. The generous contributions have been appreciated by everyone at Lockton, Shelter from the Storm and Brainwave.”
Highlights from recent events
Insurance Times Claims Excellence Awards Thursday 18th May 2017
We are pleased to announce that the Lockton Real Estate & Construction claims team were finalists in this year’s Insurance Times Claims Excellence Awards in the following categories:
• Broker Claims Team of the Year• Customer Care Initiative of the Year (Lockton Claims Code initiative)
On 18th May 2017 we attended the awards evening with six fantastic guests, James Campbell-Skelly (Rendall & Rittner), Kelly Ley (Countrywide), Gemma Flanagan (Trinity Estates), Maurice Gilbert (Morgan Management), Cathy McNicholas (BAM Construct UK Ltd), Laura Bryant (Greystar).
Although we didn’t win this year we are extremely proud to have been finalists. Daryn Hughes, Vice President and REAC Claims Manager, said “As a team we have done extremely well to become finalists for such a prestigious award, and whilst we didn’t win this year the fact that we were chosen as finalists shows that our Claims Code team and initiative was a worthy contender. I would like to congratulate those who won on the night and also my team (Karen Hume, Lauren Allard and Abi Beck) for all their hard work.”
Highlights from recent events
Market Watch Newsletter June 2017
Thank you for reading
www.LocktonREAC.co.uk @LocktonREAC
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