The £25m Inner-Limit That Won’t Cut It Anymore

Why more developers are having to reassessing their cover and turning to excess layer insurance

For years, a familiar conversation has played out with experienced, London-based developers. It usually starts like this:

“You’re buying latent defects cover with a £25 million inner limit – Yet your asset’s reinstatement value is significantly higher.”

It rarely felt like an issue at the time. That is, until one of two things happened:

• A buyer’s solicitor flags the shortfall during due diligence, and the deal collapses costing the developer a nine-figure exit.
• A major defect emerges post-completion, exceeding the policy’s limit and leaving the developer financially exposed.

When these scenarios are raised early in a conversation, the response is often:

“Everyone else is buying this cover. It’s standard. You’re catastrophising!”

Unsurprisingly, we’re now seeing a sharp rise in enquiries for excess layer cover from developers nearing completion on £25m+ schemes, many of whom are scrambling to increase their limits before they lose a registered provider or institutional sale.

What’s driving the demand for excess layer insurance?

The exit has changed and the focus on insurance has intensified

Where low interest rates and government incentives for first time buyers are a distant memory, developers are repositioning their assets with registered providers and institutional investors in mind. The level of due diligence is significantly higher and more detailed, so what was previously perceived as an over-reaction because it was an unrealised point, is now in sharp focus for some of London and the UK’s most prominent developers.

The short story is this: when schemes were sold fractionally to first-time buyers, the conveyancing solicitors involved were well-equipped for unit-by-unit execution. But selling an entire block to a single buyer – Especially an institutional one – Requires legal teams of a different calibre.
Latent defects insurance is now being examined not just for its presence, but for its adequacy. An inner limit of £25 million on an asset with a £60–100m+ reinstatement value is increasingly seen as a red flag, particularly for institutional purchasers or international investors unfamiliar with the UK’s nuances.

It’s not just legal advisors raising concerns. Funders are asking tougher questions around downside protection. Purchasers are more forensic in their approach. The days of relying on “standard” cover or solely, ‘the brand’ of the provider are gone.

Big developments, need big warranties

Despite this, many developers still rely on their general insurance broker to secure what should be a specialist policy. While the basics of latent defects insurance are widely understood, the nuances around arranging, placing and managing large-scale protection particularly for schemes north of £50m require detailed practical knowledge.

Elsewhere, cover is offered by direct sales reps of insurance companies who are limited by what they can offer and governed by a set of KPI’s, rather than what the project demands and what is best for the client. It may tick a compliance box, but it doesn’t always protect the asset or the exit.

A more tailored approach to excess layer insurance

At J3 Advisory, we’ve arranged excess layer cover & latent defects policies on prime assets across the UK for individual sums insured in excess of £200m. We work closely with developers, lenders, and funds who understand that the devil is very much in the details and if you’re not attuned to it, you can undo years of hard work at the final hurdle.

Because while no one can promise a completely smooth road to completion, getting the insurance right means you’re far less likely to get caught out by something that was entirely preventable.

If your scheme is north of £25m and your warranty still has a £25m inner limit, don’t wait for a buyer or funder to flag the gap – Increase your cover before it becomes a problem and get in touch.