The real estate business, by its nature, is complex and therefore ripe for misunderstanding and disagreement. When there is a dispute, the parties have a choice. They can go through the public courts which are expensive, time consuming, rigid, and offers no privacy. Or they can engage the services of a qualified and skilled Real Estate Arbitrator.
POP QUIZ: You are a busy business owner. You are ten years into a 20 year lease for the building that your business operates out of. The lease has a clause that the rental rate renews at “Market Rent” every five years. It is renewal time. Your landlords’ appraiser says that your rent is to go from $15,000/month, to $21,000/month plus all occupancy and common area costs, for the next five years. But your appraiser says that Current Market Rent is actually only $17,000/month plus utilities. What do you do?
WHAT ARE THE BENEFITS OF ARBITRATION?
Arbitration is a private dispute resolution service. Compared to the public courts, arbitration has five significant advantages including speed, cost, privacy, flexibility, and expertise.
- Faster: Disputes going through the public court system can often take many years. The courts are a public institution that typically has a backlog of cases with long wait times. An arbitration on the other hand is much faster, often completed within a few months. That is important, because time is money.
- Cheaper: Arbitrations are very cost effective as compared to the expense of a public trial which may often cost in the tens to hundreds of thousands of dollars. The cost of a particular arbitration depends on the scope and complexity of the issues, however it is often a fraction of the cost of a court action.
- Private: The privacy advantage of an arbitration is often very attractive to many parties especially when the nature of the dispute is sensitive, or some evidence is confidential or proprietary. The arbitrator is bound by confidentiality and ethics rules to not disclose any details of the dispute, or even that there is a dispute.
- Flexible: The public courts have rigid procedures including the rules of court and the rules of evidence. The procedures for an arbitration however can be custom designed for the particular nature of each dispute. For example, for some disputes a fast track “documents only” arbitration may be appropriate.
- Expertise: In the public court system judges are assigned at random. However, with an arbitration the parties choose the decision maker. Parties often engage a qualified arbitrator (Q.Arb or C.Arb) that also has additional specialized qualifications, such as an professional appraiser (AACI or CRA) to arbitrate real estate disputes.
ENFORCEABILITY
Arbitration awards are enforceable. Provided that all procedures were correctly followed by the arbitrator an arbitration award is often legally enforceable by the courts, very much like a judgement.
POP QUIZ: You are an investor and you have hired a general contractor to build an apartment building for you. Your payments to the general contractor are due at certain stages of completion. The contract says that “a payment of $175,000 is due once the project reaches 25% complete.” The general contractor says they are at 26% and they want their money now. You say no, it is at 15% because it isn’t correct to include the delivered but uninstalled material in the percent complete calculation. Construction has stopped until this dispute is settled. What do you do?
WHAT KIND OF REAL ESTATE DISPUTES CAN BE ARBITRATED?
A Real Estate Arbitrator can help with just about any type of real estate dispute, such as:
- Lease disputes including interpretation of clauses, rental rate renewals and terms, common area expense allocations, etc.
- Disputes regarding the interpretation and enforcement of condo/strata rules and regulations.
- Disputes involving market value, market rent, or other types of value or cost estimates.
- Issues relating to the allocation of value or cost, such as during creation or dissolution of partnership agreements or other types or shared equity arrangements.
- Disputes relating to tangible or intangible real estate or property damages and claims.
- Family disputes over the shared ownership of assets such as cottages, farmland, or revenue properties.
HOW DO I GET STARTED?
If all parties to the dispute are open to arbitration then the first step is to engage a qualified and skilled Real Estate Arbitrator. A professional with the Q.Arb or C.Arb designation is trained and qualified in all aspects of arbitration services.
It is recommended that your Real Estate Arbitrator also has expertise in the real estate industry. For example, a qualified real estate appraiser (AACI or CRA) has in-depth training and years of experience in all types of real property valuation issues, as well as expertise in a wide variety of real estate consulting and advisory services. AACI’s and CRA’s are bound by very strict ethical standards which ensure objectivity and confidentiality.
Once you have engaged a qualified and skilled Real Estate Arbitrator the next step is for the parties and the arbitrator to develop an Arbitration Agreement which establishes the scope, jurisdiction, and procedures for the arbitration.
POP QUIZ: You are a tenant in a condo/strata strip mall. Your unit is open storage space only, and all the other units are fully developed offices. The leases say each tenant must pay “…a proportionate share of the total property tax…” You think “proportionate” means that the tax bill is divided up based on the assessed value of each unit, and on that basis your share of the tax bill is $3,500/year. However your landlord and all the other tenants say no, the total tax bill is divided up equally based on occupied square feet, and on that basis your share of the tax bill is $7,500/year. What do you do?
About Suncorp Valuations
Real estate disputes are often very complex and can involve a lot of money. Do you have the time and patience to wind your way through the public courts for all to see? Or would you be better served to engage the services of an objective, qualified and skilled Real Estate Arbitrator from Suncorp Valuations that has expertise in the real estate industry and speaks your language?
Suncorp Valuations is a leading provider of independent valuation, appraisal, and advisory services. Suncorp’s valuations and appraisals have been relied upon by leading insurance companies, public and private companies, property owners and managers, tax authorities, accounting bodies, courts, municipalities and financial institutions from all over the world.
Our valuation and appraisal staff consist of professionals that are highly accredited in the fields of engineering, real estate and equipment appraisal, business valuation, risk management and loss control. Our multi-disciplinary, multi-regional and multilingual staff take an interactive team approach and have been involved in some of the most complex valuation assignments across the globe.
For questions or comments, or to be added or removed from this distribution list please Contact Us.
The insurance industry is well known for its cyclical nature of “soft” and “hard” markets. Anyone in the industry, including brokers and insurers are very familiar with the “soft” and “hard” market terminology and the very different business environments they create. They experience “firsthand” the daily impact of these market cycles on all their lines of business and service offerings. In contrast, few people outside the industry are familiar with these terms, although most individuals as well as commercial and public entities are long-time consumers of many insurance services and are financially impacted by these insurance market cycles. It is therefore important to have a clear understanding of these concepts and how it impacts individuals or business entities, so they can better navigate through the challenging times of a “hard market”, minimizing its financial impact.
Soft Market versus Hard Market
Insurance markets are impacted by national and international financial conditions, and other global events. These include the general state of the economy, interest rates, stock market performance, natural catastrophic events, conflicts between countries, terrorists’ events, evolving cyber risks, and claim activity resulting from these events.
More precisely, a “soft market” is usually a result of:
- Stable, positive economic conditions;
- High interest rates;
- Less property claims activity;
- Insurers having the adequate capital to insure.
Stable economic conditions, translates into more potential clients for insurers, since most businesses, and individuals are doing well and have the financial ability to pay for appropriate insurance coverages. When interest rates are high, the insurers’ investments are also doing well. Lastly, if claim activity is as expected or lower, and the average claim costs are lower, this also has a positive impact on their financial position. Simply put, the culmination of these factors, results in insurers being well capitalized, giving them the capacity to underwrite a larger amount of insurance throughout most of their business lines. This also means there is greater competition among insurers for business, translating into lower premiums rates and more favourable terms for the insureds.
In contrast, a “hard market” is typically a result of:
- Unstable economic conditions;
- Low interest rates;
- Catastrophic events and high property claims;
- Negative global events (i.e., climate change, pandemics, trade wars, civil unrest, etc.).
During poor economic times, businesses and individuals are not doing as well, diminishing their ability to pay for various insurance coverages. Lower interest rates also mean insurers are making less money on investments. This unfavourable financial performance is compounded if they are experiencing high property claims, especially if the average claim amounts are larger than expected. These negative factors result in the insurers having a lower capacity to underwrite insurance in most of their business lines. Since they do not want to take on any high-risk coverages during these times, they become very selective on what risks they insure, charge higher rates, and impose much stricter terms and reduced coverages. They are also much less inclined to negotiate the terms of the policy.
The Current Hard Market and How We Got Here
The state of the insurance market had been “soft” for 15 years, until Q3 of 2020. We then had a convergence of events and factors that rapidly changed the landscape of the insurance market. There has been an increase in the severity of losses, further evidence of accelerated climate change and the impact of Covid on the global economy. Because of these events and the resulting costly claims, we are now well entrenched in a “hard insurance” market, with insurers having little appetite to take on risky policies. North American commercial insurance prices are experiencing significant premium increases for most lines of business.
What Can Businesses do to Mitigate the Impact of a Hard Insurance Market
There are several things that businesses can do to lessen the financial impact of placing insurance, in a hard market:
- Review your Policy
Consult with your broker(s) to review and understand coverages. Property inclusions and exclusions should be carefully considered, along with the premises of the insured values. Redundancies should be eliminated, and any inadvertent property omissions added to the policy.
- Implement Best Risk Management Practices
Implementation of a comprehensive risk management policy is a prudent step in decreasing the chance of a loss. This will also put a business or public entity in a much better position to be viewed as a “better risk” by insurers, making it easier to place a policy at better premium rates and more flexible terms. Two components of a sound risk management strategy include having your property appraised by a qualified appraiser and developing and implementing a loss control program that can include risk inspections with recommendations and follow-up (to ensure recommendations are being executed).
- Assist your Broker(s) in Making a Better Submission
Currently, insurers are being inundated with submissions from potential clients having a difficult time placing a policy. Naturally, underwriters will select submissions that have the most complete information and tell a positive story about the client seeking coverages. It is important these submissions from the brokers highlight the risk-mitigating practices that have been adopted by their client and the positive loss history that has ensued. A current insurance appraisal and loss control report will significantly augment the submission and assist in differentiating the client from others in their industry.
- Practice More Frequent and Better Communication with your Broker
The renewal frequency may be annual; however, property and economic changes are always ongoing. So, it is useful to have periodic communication with your broker(s), especially when circumstances have significantly changed since the renewal date. These changes need to be communicated so the broker(s) and insurers have up to date information. For clients that had insurance appraisals completed, property changes are best captured in an insurance appraisal update, that can be provided to your brokers.
Why are Insurance Appraisals and Loss Control Reporting of Property Viewed so Favourably by Underwriters?
We have discussed the importance of providing brokers and insurers current insurance appraisals and loss control reports. Why are these reports (appraisal and loss control) viewed as a very important part of the submission? As a background, post-loss analysis of recent years indicates that over 60% of commercial businesses’ property are under-insured. An accurate insurance appraisal and loss control reporting completed by qualified/experienced personnel, will eliminate this risk of under-insurance, and assist to mitigate a loss before it happens. To understand the benefits to insurers, it is helpful to look at the appraisal and loss control process and the information provided within the reports. As part of the appraisal process, the property is inspected, photos are taken, and principal assets are detailed in the appraisal report, providing underwriters granular documentation of the insured property. For loss control reporting, the property is also inspected for hazards and risks that pose potential losses. Once these are identified, recommendations are made to reduce the risks, keeping with applicable standards (ex. National Fire Protection Association. This level of detail is very helpful in quantifying not only a total loss, but also a partial loss. Combining appraisal and loss control service such as Construction, Occupancy, Property Exposure (COPE) reporting can be very useful to brokers and insurers for insurance placement, however, can also be very beneficial in the unfortunate scenario of a loss.
Finding the Right Firm for your Insurance Appraisal and Loss Control Needs
As a commercial business or a public entity in this “hard market” you should discuss with your broker(s) and jointly decide whether a current insurance appraisal and or loss control reporting for your property will be useful to assist with placement of the policy with potential underwriters. If you decide to proceed with these services, how do you go about selecting a service provider that is best for your needs? Many initial considerations must be made, including the type of property to be insured and the skill sets that will be required. Specific industries such as power generation, forestry, mining, high-tech manufacturing, metal working facilities, food, and beverages, require intimate knowledge of the assets of these industries to complete an accurate appraisal and/or perform loss control inspection and reporting.
A good place to start your service provider selection process is to consult with your broker. Since they have many clients, it is likely they are very familiar with appraisal and loss control firms that perform services similar to your requirements. Secondly, contacts in companies that are engaged in similar services to your business may be able to provide referrals to reputable appraisal and loss control firms. Once you identify the firm(s) that may be able to assist, you should make the following assessment:
- Does the firm have a good market reputation? Can they provide a list of previous clients served in your industry, including recent references?
- Does the firm carry Errors and Omissions insurance for the clients’ additional protection?
- Does the firm have appropriate credentials in cost estimating and/or loss control, providing assurance of the technical knowledge required to complete the service accurately. For example, relevant accreditations include Accredited Senior Appraiser (“ASA”) designation from the American Society of Appraisers; Accredited Appraiser Canadian institute (“AACI”) from the Appraisal Institute of Canada; Canadian Certified Playground Inspector (“CCPI”) from the Canadian Playground Safety Institute; Associate in Risk Management (“ARM”) from the Risk Management Society.
- Who would be the personnel assigned to the project? Do they have the relevant educational background and technical skill sets in appraising or completing loss control inspections for the buildings and machinery and equipment?
- Will the appraisal include a site inspection, and documentation of the insurable assets to enable a current cost estimate, versus relying on indexing of historical costs from property records?
- Will the loss control report include a site inspection, documentation of observed risks and hazards with appropriate recommendations to mitigate loss?
- What type of report(s) will be provided? (It is not unreasonable to request a sample report of the deliverables and share it with your broker to ensure it meets their requirements).
Conclusion
Insurance appraisals and loss control reporting are always a key component of an entity’s risk management strategy. This is especially so in this current hard market, as insurers are much more selective as to which properties they underwrite. Further, with the current higher insurance rates, reporting of overstated values will translate into even larger premium overpayments. An accurate insurance appraisal and loss control report completed by an accredited, experienced, reputable firm, is your best option to assist with placement of insurance in this hard market.
For Assistance in this Hard Market, Call Suncorp Today.
What do you specialize in and what are the best circumstances that clients/prospects should come to you for help?
Throughout my time at Suncorp, I have had the opportunity to experience and work on a large variety of assignments, from standard industrial appraisals, to multi-family, office, retail, agricultural and development land, as well as appraisals for a number of special use properties. However, appraisal work specific to expropriation, going concern valuations on recreational properties, or real estate in secondary markets, are areas I specialize in.
Please describe an interesting project you worked on recently.
I recently worked on an assignment of an RV Park which has been heavily impacted by both COVID and the downturn in the oil and gas industry in its respective area. There were several moving parts to consider, both in terms of the property itself, and the changing market conditions.
What do you enjoy doing when you’re not working?
I enjoy gardening, paddle boarding, hiking and going out quadding and snowmobiling with my family; really anything outdoors, and I love travelling.
What’s your guilty pleasure?
Ice cream.
How many years have you been in the Industry?
17 Years.
With Suncorp?
All 17 Years.
Many factors influence building costs. These factors fall under the general categories of material costs, services costs, and labour costs.
Looking at material costs, there are many sub-categories such as framing lumber, concrete, steel, gyproc, insulation, etc. Each of these sub-categories are impacted by supply and demand forces in their particular market which ultimately influences the cost for that item.
Looking at framing lumber, these costs have risen significantly during the past year mainly due to a rapid rise in housing starts. On the other hand, labour costs have flattened or in some cases fallen with some sub-trades and in some regions during the past year due to mass layoffs and high unemployment caused by the COVID pandemic.
Although there are innumerable factors that influence building costs, during the last ten years the overall trend has been inflationary.
During the first year of the pandemic, there has been a great deal of volatility, but the overall trend has been inflationary as well.
According to Stats Canada, Canadian residential construction costs increased by 12% between Q1 2020 and Q1 2021.
We have observed in some cases that although building material costs have recently risen significantly, some developers are decreasing profit margins or taking some other steps to lessen the inflationary impact.
As an example, statistical data indicates that overall building costs in the Vancouver region rose 3.7% from Q4-2019 to Q4-2020, and that during the same period the cost of single family housing rose 6.6%.
What is the current outlook for building cost trends for 2021 and 2022?
This short-term rate of building cost inflation is unsustainable. Therefore, at some point in 2021 or 2022 the pace of increase should slow to levels that are more traditional. There may even be a period of deflation to some degree as the markets re-adjust. However, with so many different factors at play it is impossible to predict the nature and timing of this change in trends.
How does this affect Insurance Appraisals?
During normal business cycles, Suncorp’s professional staff monitor a wide variety of data sources to support building cost estimates for a wide variety of building types, and in a wide variety of locations. This includes analysis of statistical data from Stats Canada, RS Means, Marshall & Swift, and many other reliable sources. We also collect and analyze market data in the form of actual costs from current construction projects.
During times of economic instability, such as the COVID pandemic, market forces become volatile. This volatility affects the many factors that influence building costs. As such, it becomes challenging to accurately estimate building costs during these periods. For example, statistical reports often have a 3-6 month lag time. Accordingly, the recommendation by many brokers is to have a professional appraisal done at regular intervals so long term market factors such as economic and even monetary factors (exchange rates) are considered to arrive at an accurate value.
Have you ever considered getting a second opinion on an appraisal, cost estimate report, reserve fund study / depreciation report, or consulting report? Here is an option, the Technical Review. You can even get a Technical Review of a Technical Review.
What is a Technical Review?
A Technical Review is an unbiased and objective formal written critique of a report that was prepared by another firm.
The purpose of a Technical Review is to form an opinion on if a subject report is credible and reliable. The opinion is supported in the Technical Review report by detailed analysis of any errors or deficiencies observed in the subject report.
Technical Reviews are prepared by Suncorp’s Senior Consultants whom have completed additional training and have experience in this specialization. Technical Reviews prepared by Suncorp are prepared in alignment with the Review Standards of either the Uniform Standards of Professional Appraisal Practice (USPAP), or the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP).
What are Technical Reviews used for?
Technical Reviews are most often prepared for different types of litigation support, and at various stages including pre-claim analysis, or to assist with preparation for cross examination.
Technical Reviews are also often commissioned as part of a due diligence process. For example, a private equity lender may require a Technical Review of an appraisal report to help determine the credibility and reliability of an appraisal submitted as part of a mortgage application.
Scope of a Technical Review
The scope of a Technical Review has a very wide range, from a basic standards compliancy up to a full audit of work-files.
All Technical Reviews include a standards compliancy review against the set of standards under which the subject report was prepared, which could be either USPAP, CUSPAP, RICS Red Book, International Valuation Standards, etc. This stage also includes a review of methodology employed within the subject report.
Technical Reviews may also include additional steps depending on our clients need. These can include verification of factual data reported within the Subject Report, re-inspection of the subject property, additional market research, or even a full audit of the entire process and work-file. Often our clients may have specific questions or issues they may want us to investigate.
It is important to note that a Technical Review does not provide an alternate opinion. For example if the subject report is an appraisal report, the Technical Review does not include an alternate opinion of value. However if the client also needs that alternate opinion of value, Suncorp is available to provide that service under separate cover.
Geographical Considerations
Depending on the scope, Technical Reviews may be conducted on reports developed on properties located virtually anywhere.
For example if the subject report is a Reserve Fund Study on a property located in, say Texas, and the scope of review is limited to a standards and methodology review, then the location of Suncorp’s reviewer is not an issue.
Suncorp’s Technical Reviews Services
Suncorp Valuations can provide Technical Review services on a wide variety of report types including Real Property Appraisals, Machinery & Equipment Appraisals, Insurance Appraisals, Reserve Fund Studies and Depreciation Reports, and related Consulting Reports.
For a Second Opinion, Call Suncorp Today.
Learning Objective: To discuss the recommended inspection practices for Playgrounds after winter conditions.
The requirements/recommended practices for inspections of playgrounds follows CSA Z614 “Children’s Playspaces and Equipment Standards”. Compliance with this CSA standard will help to reduce injuries on playground equipment. This document will discuss the recommended practices for Playground Inspections before opening in the spring.
Design & Operation
- All Playgrounds should be installed according to the most current CSA standard.
- A “third party” detailed Playground Safety Audit should be in place on all equipment.
- Standard impact protection, sand, pea gravel, wood chips, rubber, etc. should be maintained at all times.
- Damaged equipment should be repaired or removed from play immediately to help prevent injury.
Spring Time Inspection
- Have any changes taken place to the equipment over winter that could affect the integrity of the playground structures.
- Is all playground equipment in good condition with no damage or missing pieces?
- Is all impact protection materials maintained to appropriate depths to help minimize exposure to injury (Tilling or top up may be required after winter snow pack)?
- Check to make sure all standing water is drained as quickly as possible or device cordoned off until such time as this water can be drained.
- If needed, Cordon off equipment from use should repairs, standing water, or other damage be evident.
- Is appropriate signage provided and visible alerting patrons to current conditions?
Regular Inspection/Maintenance Schedule
- Daily/weekly: Visual inspection for broken glass, vandalism, animal droppings, damaged equipment, etc. Replenish or rake ground cover. This inspection should be conducted before students arrive in the morning (if a school) and can be performed by any staff member or a custodian. The inspection and any corrective action should be logged in a daily journal. (Appropriate maintenance department staff should be notified immediately if any concerns are noted. Have process in place, work order or communications system, documented inspections and follow up.)
- Monthly:This is a more detailed inspection and must be recorded on an appropriate equipment checklist form. This inspection should be conducted by a certified inspector. Any maintenance or repairs noted on the checklist should be acted upon immediately, and recorded when completed.
- Annually:This is a comprehensive audit of the playground site that should be conducted by a certified playground inspector. Contact your applicable department office or ourselves if needed. Annual Audits should be provided as per current CSA standards.
For additional information, contact:
Doug Taylor, CRM, CCPI
Managing Director, Risk Management Group
doug.taylor@suncorpvaluations.com
