MIXED-USE PROPERTY CASE STUDY
Salon, Florist and Two Units, Bound Four Days Before Settlement, Regional Queensland
Two family trusts buying a 2016 mixed-use building had five weeks to settlement and a bank on the contract. Five insurers declined. Placed at around $5,200.
THE SITUATION
Two family trusts were buying a mixed-use building in a regional Queensland city, with settlement five weeks away and a bank named on the contract. They came to us with the settlement date already fixed.
The building was built in 2016 with concrete floors, brick and weatherboard walls and a Colorbond roof. At street level were two commercial tenancies, a hair salon and a florist, each on a lease of around $15,500 a year. Above were two two-bedroom units at around $500 a week each. By floor space the building was 157 square metres residential to 127 square metres commercial, which made it about 55 per cent residential. The building sum insured was $1.25 million and the buyers had a premium target of around $6,000.
OUR APPROACH
With a settlement date fixed, the order of markets mattered more than the number of them.
- The residential share, calculated first: at 55 per cent residential by floor space the building sat inside the threshold of the markets we use for this configuration, and we confirmed that with the underwriter by phone before relying on it
- Low-risk tenancies presented as such: a salon and a florist are ordinary retail with no cooking, and the submission said so rather than leaving the underwriter to assume hospitality
- The insured name and the bank: the building was being bought by a partnership of two trusts, so we set the insured name up as the contract described it and noted the bank as interested party from the start
The submission covered the construction, the tenancy schedule and rents, the smoke alarms and security, and the settlement date.
THE CHALLENGES
Five insurers declined to provide a quote, and a sixth referred the risk internally and then declined too. The reason was the one that recurs across our mixed-use book: the residential part of the building was bigger than the commercial part, and mainstream property insurers stop at around half.
The clock was the other constraint. A decline that arrives after an internal referral costs more than a decline that arrives in a day, and with settlement fixed we could not afford to wait on markets that were unlikely to write it.
THE OUTCOME
We placed building cover at approximately $5,200 a year, under the buyers' target and on the wording we wanted for the building.
Cover was bound four days before settlement, in the names of the two trusts, with the bank noted as interested party on the certificate of currency.
If you are in the same position, cover before settlement or refinance lists the eight things that make it fast, and when most of the building is residential explains the threshold that produced the five declines.
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Give us the date first. We map the markets around your deadline and can usually issue the certificate of currency the day cover is bound.