J3 Advisory, the structural warranty insurance and structured property finance specialists, are revolutionising the advisory market, combining invaluable insight with a cohesive and truly impartial approach. They provide transparent, un-conflicted and pragmatic advice, saving housebuilders valuable time and money, and also giving peace of mind that the advice given is purely with the client’s interests at heart, with no hidden agendas.
We caught up with managing director, Jack Bristow, and directors, Johnny Leadsom and James Mole, to discuss the risks of underinsurance, the unique funding opportunity that they are providing for clients, and why developers should retain control of the structural warranty.
The risks of underinsurance
Johnny – “Underinsurance, where the sum insured on the policy doesn’t cover the full cost of the project, is a real issue but worryingly common.”
“A lot of providers will insure housebuilders for the full sum that they need, but hidden away in the small print or obscured by all the positives that are included, will be a clause that limits the amount you can claim in any one claim. This could mean that in the case of a complete failure, a developer would not be able to claim for the full cost of the scheme. It’s something that we see quite often in the market and can catch even the most experienced developers out.”
“As independents, our diligent approach cuts through the fine print to highlight exactly what a policy will and will not provide, so our clients are fully aware of what each entails. This means that we can provide our clients with peace of mind that there will be no hidden surprises in the policies that we recommend.”
Jack – “This is another reason why cheapest does not always mean best, as there is often a reason that lower cost policies can be priced as they are, which typically means there are a lot of caveats in place that might result in developers not being fully covered. We make our recommendations based on the suitability to your project, which may sometimes mean that the right policy is not necessarily the cheapest, but it does mean that you will have the right policy for your scheme and have the reassurance that there won’t be any nasty surprises.”
Zero deposit funding – a unique way to pay for building warranty
With any scheme, cash flow is always one of the key factors in decision-making, and taking out an insurance policy for a development can often result in a significant capital outlay for housebuilders in the preconstruction cycle. With rising costs and margins being squeezed, committing to upfront costs for an insurance policy can present a challenge. To address this, J3 Advisory has a unique funding agreement in place to alleviate some of the financial strain on its clients.
James – “We’re delighted to be able to offer our clients the opportunity to secure their building warranty upfront with no deposit at all, instead financing the cost of it in instalments over a period of time.”
“This allows developers to avoid having to part with a significant amount of money and also takes the pressure off the cash flow. This is particularly useful in the early stages of a development, where developers regularly have to bear so much upfront cost, and instead provides them with a much more flexible approach.”
“This deposit-free funding opportunity is something that clients won’t find elsewhere and we think it can be hugely beneficial to developers, especially during that preconstruction phase.”
Retain control and avoid costly repercussions
It is quite a common occurrence for developers to pass on the responsibility of arranging structural warranty for a scheme to their main contractor, but doing so could result in costly issues further down the round.
Jack – “In some ways, letting the main contractor arrange warranty for the scheme makes sense. They will be responsible for any remediation and correcting any errors in the first two years after practical completion, after all. Developers have a lot to think about in the preconstruction phase too, not to mention a lot of outlay, so it’s understandable to want to take one extra thing off their plates. But this approach can lead to problems, particularly in an unstable economic period as we are now.”
Johnny – “Unfortunately, contractors are often the first to feel the effects of a hardening market. If the contractor has taken out the policy and subsequently runs into difficulty where they are unable to fulfil their obligations of the contract, a developer will not be able to continue that policy. All the money that has been paid for that policy will be lost and the developer will then need to put into place a new structural warranty midway through the project.”
“This brings up another issue as insurers are less likely to want to take on a part-completed scheme, especially in a hardening market. It may even be the case that the developer won’t be able to find a policy at all.”
“In this scenario, the developer would also need to find a new main contractor, but these are unlikely to agree to take responsibility of the defects period for the work that the previous contractor had undertaken. As a result, it will come down to the developer, as the only party willing to take responsibility, to take the hit for the new structural warranty, which could potentially come at a higher cost than the original policy.”
Jack – “The other potential risk with the main contractor arranging the warranty is that, as previously mentioned, these companies tend to be the ones working with the slimmest margins. With that being the case, the cost of the warranty could become a much more influential factor than it providing comprehensive cover, which could lead to a whole number of issues if it turns out that the policy only looked good on the surface but wasn’t actually fit for purpose.”
“If a developer arranges their own warranty, it eliminates the risk of these issues occurring. Not only can you ensure that your policy covers everything you need it to by enlisting expert advice, but if the worst does happen and you need to find a new main contractor, the existing warranty can simply be amended and will still remain valid. The potential cost and time savings are huge so for that reason we would always recommend the housebuilder taking responsibility for the warranty.”
Doing things differently
J3 Advisory has set out to provide a truly unique proposition for developers, offering truly impartial, expert advice in a market where transparency isn’t easy to come across.
Through their years of experience, the team understand what developers are looking for, and find solutions that often result in saving money, but always result in saving time. Housebuilders can rest assured that J3 is working purely with their clients’ best interests in mind, with no affiliations or hidden agendas.
To demonstrate its open and honest approach, J3 Advisory has launched a Building Warranty Calculator to allow developers to get an understanding of their expected warranty costs in a matter of seconds, with no commitment. Once ready, the team will be on hand to help you take the next step and find the right policy for the project.
Find out more about J3 Advisory and the services they provide on their website, or by getting in touch on 0203 096 0718.
