During this challenging and uncertain time of the COVID-19 pandemic, surveyors should be alert to the risks, new and old, that they face and the support available to them. On 1 April 2020, RICS issued a bulletin on the measures they are adopting, including fast-tracking changes to professional indemnity insurance, and setting out guidance to support its members in tackling the current difficulties.
Valuations and Inspections
Whilst the suspension of the lending market is going to reduce significantly the number of valuations and inspections required, there may still be cases where the need arises. As a result of the COVID-19 outbreak, inspecting property may be difficult either as a result of a firm’s own internal procedures, Government imposed restrictions on contact or the unwillingness of occupants to grant access. The RICS advises that surveyors should not expect to carry out non-urgent surveys in homes where people are in residence, and no inspections should take place if any person in the property is showing symptoms of COVID-19, is self-isolating or being shielded. However, RICS accepts that it may be possible to perform urgent surveys on empty properties or those where the occupants are temporarily out of the property in accordance with social distancing guidelines.
If surveyors experience any restrictions in information and/or the ability to inspect properties, this must be made clear to the client, agreed and clearly recorded in the report. To the extent applicable, all affected terms of engagement should be amended to reflect this.
Valuers should consider whether any changes need to be made to valuation assumptions as a consequence of restricted access and/or valuation information. RICS advises that its members should decline instructions if it is not possible to provide a valuation on a restricted basis. Valuers should have regard to the relevant requirements of the Red Book (including VPS 1.3.1(i), 2.1, 3.2(g) and 4.8). Where valuers conclude there is ‘material uncertainty’, RICS has provided suggested wording that may be sent to the client (available here).
The new Home Survey Standard, which RICS intends to become the best practice benchmark for residential surveys, was scheduled to come into effect on 1 June 2020 but this has been postponed to 1 December 2020.
Professional Indemnity Insurance
In January 2020, RICS launched a consultation on proposed changes to professional indemnity insurance (PII) due to the restricted appetite in the PII market. RICS identified three key reasons for the challenges in the PII market: (1) under-pricing of insurance meant that two thirds of Lloyd’s syndicates were underwriting at a loss; (2) economic uncertainty caused by Brexit; and (3) insurer concerns around fire safety and cladding.
The key proposed changes to the Minimum Policy Wording include:
The fire safety exclusion wording has been removed and RICS have temporarily inserted the ability for insurers to apply their own fire safety exclusions. Under the Insurance Distribution Directive, insurers are required to explain the intent and potential impact of the exclusion in the product summary.
An exclusion of liability has been added to relation to completing external wall fire reviews.
Excesses to be applicable to defence costs in order to give insurers greater flexibility to write terms.
Policies can be written on an aggregate (unlimited round the clock) reinstatement basis.
There will also be changes to the admissions process for the Assigned Risk Pool (ARP) to simplify the governance of the ARP and ensure firms have adequate coverage.
The amendments to the minimum insurance requirements are due to come into effect from 1 May 2020. However, to ensure an immediate response to the current PII challenges as a result of COVID-19, RICS has confirmed that it will apply the new terms now. RICS advises that those who wish to take advantage of these changes before 1 May should notify their broker and the RICS will accept requests for dispensations written against the minimum terms.
During this difficult and unprecedented time, surveyors should ensure they stay up to date with the guidance and support measures introduced by RICS. This will assist surveyors to identify the new or increased risks they face (e.g. exploitation of the COVID-19 outbreak by fraudsters) and the changes that should be introduced to their daily practice. Surveyors will want to consider how best to protect their business from future challenges or claims by making sure their actions accord with the currently changeable standards and guidance published by RICS.