Rebuilding Costs and Ground Contamination

Rebuilding following fire loss – planning permissions, associated surveys and ground contamination


In conjunction with our planning consultants we considered the implications of serious damage to an industrial building by fire and the requirements of the current planning regime.


Planning Applications
The insured’s representatives will be required to submit a full application for planning permission in respect of the replacement building, regardless of what stood on the site before the damage.


It is not generally realised that the planning application will need to be accompanied by various surveys which could slow the process of reconstruction and increase costs markedly.


We have recently been involved in a civil engineering project which, although not part of an insurance claim, required an extensive series of surveys by specialists.  We believe that an application for planning permission for the rebuilding of a destroyed industrial or commercial property following a fire would require most, if not all, of the surveys listed below:


  • Ground contamination survey
    A desk-based survey followed by an invasive survey with laboratory tests of samples will almost certainly be required.  Such a survey will reveal the full extent of contamination affecting the ground on which the replacement building is to be constructed.


  • Noise survey
    The noise survey will determine the effect to which operations on the site after rebuilding will affect the surrounding area, particularly in a residential area with close proximity to the site.


  • Flood risk survey
    For sites in excess of 1 hectare (approximately 2.5 acres) or within any flood risk area a flood risk survey will be required.


  • Asbestos survey
    The debris of the damaged building could be contaminated with asbestos.  An asbestos survey will be required and it is likely to be expensive and time-consuming.


  • Transport survey
    This survey will assess the impact on the surrounding area of the replacement building and traffic movements from and to the site and seek to measure the impact on adjacent roads and access points.


  • Other surveys
    Other possible surveys may be required to support a planning application such as those relating to ecology and air quality.


How is the insured to be compensated by insurers?
If the insured’s buildings are insured on a reinstatement basis with a sum insured which represents full rebuilding, including allowances for demolition and debris removal and professional fees, the costs incurred for a planning application, surveys and removal of ground and other contamination may be recoverable from insurers on the following basis:


  • Cost of a full planning application
    We believe that this will form part of the rebuilding cost provided it is in respect of a building similar to that which has been destroyed.


  • Ground contamination survey
    Our view is that if the contamination was not fire-related and pre-existed the catastrophic event, insurers would not pay for the removal of the contamination.  The insurance policy does not cover the building but covers the insured’s financial interest in the building.  It does not cover their interest in the land which, if the contamination pre-existed the fire, was not damaged by an insured event anyway.  Just before the fire the building was standing on land on which it could not be rebuilt without expensive decontamination and the fire did not change that position.  It is, of course, difficult to anticipate the insurer’s position if there were pre-existing contamination which was worsened by contamination caused by fire.  Each case would need to be dealt with on its merits.


  • Noise, flood and transport surveys
    If these surveys are required to support a planning application to replace a destroyed building we believe that the costs will fall for consideration as part of the cost of reconstructing the building.


  • Asbestos survey
    By law all commercial enterprises were required to have a survey of their premises to discover evidence of asbestos and to take action to isolate or remove any offending areas.  There is generally a lack of clarity in deciding to what extent insurers would be responsible for reimbursing an insured for the cost of the removal of pre-existing contamination by asbestos which can be a costly.


Planning permission subject to conditions
If planning permission is granted for the reconstruction of a replacement building it will almost certainly be subject to conditions which the property owner will be required to fulfil before, during construction or by the time of completion of the rebuilding.

If a site is found to be contaminated, the local planning authority will require the contamination to be excavated, removed and transported to a licensed site.


One of our clients was to carry out some construction works which required planning permission.  As part of the process contamination was found which required removal.  The estimated cost of excavating the contamination and taking it to a licensed site (the only one available was in the north-east of England) ranged between a minimum of £100,000 and a maximum of £280,000 per acre dependent upon whether all contamination on the site was removed or only that where excavation had taken place.  Based on the cost of constructing a hypothetical 15,000 square foot warehouse, the cost of removing the contamination (excluding building demolition costs) could be said to be a minimum of 8% and a maximum of 18% of the approximate rebuilding cost.


The question of removal of ground contamination in a fire loss scenario is a thorny issue.  Allowances for Professional Fees and Debris Removal Costs should be therefore carefully considered to ensure that they are adequate to meet the invariably increased costs of this hitherto “hidden” expenditure whether as a result of removal of contamination caused by fire or the numerous surveys required.


Consideration should also be given to the likelihood of reconstruction of a destroyed building being delayed by ground contamination issues or by virtue of a planning authority’s demands and the possible impact such measures could have on Business Interruption insurance.


Arthur Broadhurst FRICS


About Thornburn & Company:
Thornburn & Company are Chartered Valuation Surveyors providing the highest standards of excellence in professional valuation services across a wide range of industries for more than 50 years.

For more information contact:
Tel: +44 (0) 161 833 0033


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