Mid-market insurance

Rebuild valuations for commercial property owners

Reviewed by the Apex broking team · Last reviewed 2026-11-04

A rebuild valuation is a professional estimate of what it would cost to demolish, clear and rebuild an insured building to current standards after a total loss. It matters because the buildings sum insured is set from it, and an understated figure can reduce every claim, not only a total loss.

Part of: Commercial property owners insurance

What a rebuild valuation is, and what it is not

A rebuild valuation answers one question: if this building were destroyed tomorrow, what would it cost to put it back? That figure, usually called the reinstatement cost, is what most property policies expect the buildings sum insured to reflect. It is different from the price the building would fetch on the open market, its book value or the figure a lender uses.

The RICS professional standard Reinstatement cost assessment of buildings is clear that the declared value for insurance purposes has no direct relationship to market value. A city centre office block may be worth far more than its rebuild cost because of its location, while a specialist industrial unit or a heritage property in a low value area may cost much more to rebuild than it would sell for.

For owners with a commercial property owners policy or a property portfolio policy, the valuation is the foundation of the whole programme. Loss of rent, debris removal and many extensions are often expressed as a percentage of, or in relation to, the buildings sum insured, so an error flows through.

What goes into the figure

A reinstatement cost assessment is more than floor area multiplied by a rate. The RICS standard expects the surveyor to allow for the cost elements below, and to record the assumptions made.

Cost evidence may come from sources such as BCIS (the RICS building cost information service), price books and the surveyor's own costings. For larger or unusual buildings a measured survey by a qualified surveyor is generally more reliable than a desktop index or online calculator.

Underinsurance, average and day one reinstatement

If the sum insured is lower than the true reinstatement cost, most commercial property policies contain an average condition. In simple terms, the insurer pays the same proportion of a claim as the sum insured bears to the value at risk. Average therefore affects partial losses as well as total ones. Our guide to underinsurance and the average clause sets out the mechanics.

Some policies apply a percentage condition of average, where claims are paid in full if the sum insured is at least a stated proportion of the true value. The RICS standard gives 85 per cent as an example. This helps with partial losses but does not rescue a total loss where the sum insured is simply too low.

Day one reinstatement cover works differently. You declare a reinstatement value as at the first day of the policy period and the insurer adds an uplift to cover inflation during the year and the rebuild period. RICS notes that uplifts commonly range from 15 to 50 per cent. Average is usually applied to the declared value rather than the uplifted limit, so the declared figure still needs to be right, subject to the policy terms.

Under section 3 of the Insurance Act 2015 a business must make a fair presentation of the risk before a contract is entered into. Sums insured and the basis on which they were calculated form part of what you tell insurers, so a documented valuation is useful evidence of a careful presentation.

Listed buildings, specialist properties and portfolios

Listed and historic buildings need particular care. RICS advises surveyors to confirm listing status and category, because listing can affect reinstatement cost. Listed building consent is commonly required for works, and the planning authority may insist on matching materials or traditional techniques, which can add abnormal costs and programme delays. See our page on listed building insurance for how cover is usually structured.

Specialist properties such as care homes, laboratories, hotels and buildings with complex services carry fit out and plant that a generic rate will miss. The same logic applies to education estates, covered in our guide to school buildings reinstatement valuations.

For a portfolio, the schedule of sums insured is only as good as its weakest entry. A mid-sized landlord may have assets valued at different times, by different firms, on different bases. RICS treats an annual inflation adjustment and a major review every three years as good practice, with a fresh assessment after significant alterations. Where a policy is index linked, check when indexation actually applies, as it may only bite at renewal. On larger schedules, some insurers will contribute to the cost of valuations or arrange them, subject to their terms and the size of the account; it is worth asking at renewal. For more on structuring the programme, see insurance for commercial property portfolios.

Illustrative examples

These examples are illustrative only. Figures are invented round numbers to show the mechanics and are not taken from any real property or claim.

Example 1: average on a partial loss

An owner insures a light industrial unit for 2,000,000 based on an old valuation. A fresh assessment would have put reinstatement at 3,000,000. A fire causes 600,000 of damage. Applying simple average, the insurer may pay two thirds of the loss, leaving the owner to fund around 200,000 plus the excess.

Example 2: a listed office conversion

A Georgian terrace converted to offices is insured on a rate per square metre suitable for a modern office. After a serious fire the conservation officer requires lime render, handmade brick and replacement sash windows. The shortfall between the sum insured and the actual cost falls on the owner.

Example 3: a multi-let schedule

A landlord with twelve units revalues only the three largest. The remaining nine were last assessed years ago. If the policy applies average per item, any one of those older entries could produce a reduced settlement even though the overall schedule looks reasonable.

Common mistakes and what to check with your broker

• Using market value, purchase price or a lender's valuation as the buildings sum insured.
• Forgetting demolition, debris removal, fees or VAT when setting the figure.
• Assuming index linking alone keeps the figure accurate for years.
• Not revaluing after an extension, refurbishment or change of use.
• Leaving tenants' improvements unclear, so neither landlord nor tenant insures them. Our reinstatement cost explainer covers this.

Before renewal, it is worth checking:

1. When each building on the schedule was last professionally assessed, and on what basis.
2. Whether the policy is on day one, indexed or simple sum insured terms, and how average applies.
3. Whether figures include VAT, and whether that matches your VAT position.
4. Whether any listed, specialist or high value buildings need a measured assessment.
5. How the sums insured feed into insurance rent under your leases, which tenants may scrutinise. See the landlord's covenant to insure.

Apex arranges commercial property cover for owners and portfolio landlords and can help you review your schedule of sums insured; a broker reads every enquiry.

Sources

• RICS: Reinstatement cost assessment of buildings
• RICS professional standard (PDF), 3rd edition
• Insurance Act 2015, section 3: duty of fair presentation

Frequently asked

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, company number 07014570. This page is general information, not advice on your individual circumstances, and it does not guarantee that cover will be available or on what terms.