Yes - certainly if you are an insurer or have heard recent reports produced by the Environment Agency amongst others. Landowners, particularly those unforunate enough to have suffered flooding, should also view it as such.
Firstly, one of the Environment Agency’s studies, Flooding in England, estimated that one in six properties in England is at risk from flooding. As this amounts to approximately 5.2 million properties, many landowners will encounter this at some stage, if they have not done already. Climate change is expected to exacerbate this trend.
Secondly, the definition of “flooding” is expanding beyond just river and coastal flooding and can now include surface and ground water flooding.
Thirdly, and most importantly, insurers are increasingly viewing flooding as a real risk and are re-pricing flood insurance accordingly. A flood search is becoming an increasingly standard part of the conveyancing process when acquiring land.
Financial and insurance implications
The expansion of the definition of “flooding” for insurance purposes and the consequential re-pricing of cover could affect the mortgageability and value of properties. A reflection of this is that lenders now require a flood search as standard. Indeed, the Council of Mortgage Lenders has said that its members are unlikely to lend on properties without flood insurance.
Landowners whose properties are in an area at particular risk of flooding may struggle to obtain necessary lending finance and flood insurance may be difficult to secure or may come at a higher premium and excess. Commercial borrowers in this situation who cannot secure flood cover will be breaching the standard mortgage agreement, which contains an obligation to maintain full buildings insurance. A potential consequence of failing to comply with this is a withdrawal of finance. It may also reduce the value of the property. All of the above is in addition to the adverse economic and physical consequences that landowners suffer where their properties have flooded.
What can landowners and prospective landowners do?
It’s not all doom and gloom. Landowners can take some practical steps to help mitigate the risks associated with flooding in relation to property:
- A commercial decision: a prospective buyer or tenant does not necessarily have to withdraw from acquiring a property just because it is at risk from flooding. Where the risk is low it may be feasible to “take a view” and proceed with the acquisition.
- Price: where there is a higher risk or a history of flooding, one option may be to reflect this in the purchase price. A reduced figure could leave the buyer or tenant able to afford taking on responsibility for dealing with any flooding - be it via repairing any damage caused or paying for a higher flood insurance premium or excess.
- Be practical: where flooding has happened before or is indentified as likely, view it as a real risk and plan accordingly. Where possible, move important machinery, goods and documentation away from areas that could flood such as the lower levels in a building, land or business. The Environment Agency and various other bodies have useful practical advice and suggestions.
- Responsibility: depending on whether the parties have agreed a reduced premium to reflect this, amend a lease accordingly so as to expressly state who will be responsible for flood damage – the landlord or the tenant.
- Checks: prospective tenants and landowners should do their homework in advance of acquiring an interest in land. I previously mentioned the need to carry out a flood search. There are various types and levels of investigation depending upon whether the land is residential or commercial and on the value of the land and the transaction. As part of this due diligence, there are specific questions on flooding in the standard commercial property enquiries which should also be raised. Don’t just rely on the standard environmental search instead of a flood search. For flooding information, the environmental search often only refers to flood data on the Environment Agency’s map and is therefore of limited range. Where a search identifies a level of risk that is of concern, a prospective buyer or tenant may want to carry out a more detailed, intrusive search. Search providers can supply advice on this.
- Planning: depending on the land concerned and the likelihood of flooding (reinforcing the need to carry out a flood search), landowners may need to produce a flood risk assessment for planning application purposes. If the property is close to a river, then planning applicants should liaise with the Environment Agency on their application.