Pre-planning vs post-planning: when to insure?

When it comes to managing title risks on development sites such as Restrictive Covenants and Rights of Light, pre-planning insurance is becoming more popular with developers and investors, as these risks directly impact upon what may or may not be built on a site.

What are the practicalities of managing risk earlier in the development process? Here is a quick rundown of frequently asked questions:

Q. I haven’t submitted my planning application yet, but have quotes for pre-planning and post planning cover, how do I decide when to put the policy in place?

A. In most cases, it is a case of weighing up cost of the insurance premium versus your financial risk exposure.

Pre-planning cover establishes cost certainty upfront, and enables risk management of financial exposure, often required by lenders, and can be a more appealing prospect to investors. It is important to be aware that if your planning application or option fails, you will still have cover against any claims that occur whist you are going through the planning process.

Post-planning cover tends to be less expensive than pre-planning cover; by the time a planning application has been approved insurers have a better idea of the risk that they are taking on. When you obtain a post planning quotation before you have Grant of planning, keep in mind that the premium quoted tends to be contingent upon getting through the planning process without having received any objections relevant to the insured risk.

Q. What happens if no one objects to my application?

A. Conversely, if you get through the planning process without any objections from neighbours or beneficiaries that directly impact on your development, post-planning insurance tends to be less expensive as the insurer can be more certain of the risk they are taking on.

Q. What will the insurance pay out if I do not have planning permission yet?

A. This very much depends upon the nature and timing of the claim. The insurer will attempt to settle any claims if legal action is taken against you; the insurer can pick up associated costs. However, always check your insurance policy to confirm as to what losses you are covered for.. Should legal action result in a court order, the policy will pick up the legal costs as well as the diminution in market value of the site at the date of the order. It’s also important to note that the market value will relate to the site value as the difference in the site valuation with and without the legal restriction.

Q. Why does going through the planning process affect the premium payable for insurance?

A. When you submit your planning application and public consultation takes place it will likely alert neighbours to your development, and they may then object to the application. , For example, should one of those objectors happen to be the beneficiary of a restrictive covenant on your site, and they state that they are objecting to the development because they have the benefit of the covenant, it may render insurance unavailable, or more costly, on a post planning basis.

Q. What happens if I take out pre-planning insurance, and the scheme that I have insured then changes?

A. It is important to think about the definition of the Insured Use; is the Insured Use tied to a specific planning application? This is something to agree with the insurer upfront, but there can be flexibility within the insured use for example defining the maximum density of a site rather than including a specific planning reference. This is a particularly important consideration for rights of light insurance.

Q. I’m looking to flip a site on with the benefit of planning permission, how can I be sure that the incoming purchaser will be satisfied with the insurance purchased on a pre-planning basis?

A. The benefit of the insurance will pass to the incoming purchaser as a ‘successor in title’. Should the new owner wish to submit a new scheme for planning permission they would need to refer to the definition of the insured use to establish as to whether the policy is appropriate for their needs.

Q. What do you mean by post-planning cover?

A. We refer to a site or application as ‘post-planning’ when you have Grant of Planning Permission, however, Resolution to Grant would also be something that as an insurer we would consider as a post planning risk rather than pre planning. Any application prior to this stage is a ‘pre-planning’ risk.

If you have any further queries about our insurance policies and how they relate to pre- and post- planning, or have a case you would like us to review, please contact amanda.armitage@legal-contingency or call the team on 020 7397 4343.