Choosing to uninsured commercial property through self-invested personal pensions (SIPPs) in could be putting retirement income at risk, says Oval Insurance Broking.

Peter Vanderweele, divisional director at the group, is concerned that commercial property that does not have a long-term warranty is a dangerous asset class to invest in, and could result in severe losses to the fund with little hope of a route back should a problem occur.

Vanderweele has said that it is often assumed that a warranty is not necessary on commercial property since owners are free to sue the builders, sub-contractors or professional team should a defect develop.

However, he claims, in order to successfully recover losses, the injured party would need to prove negligence: "This almost always leads to a difficult and drawn out legal battle as the finger of blame is pointed at all the parties involved in the construction.
Meanwhile, the owner will be left with an unusable building with no way to finance the necessary repairs."

Vanderweele explained that this is a particularly concerning time as, according to research, eight building firms close for business daily. "The right to sue will mean even less if there is no firm left to take legal action against and this is likely to leave many commercial property owners with little or no recourse should their building develop a defect. In essence, this could leave the property worthless or unable to accommodate tenants and could therefore cause a severe reduction to a SIPPs fund," he said.

He is urging pensions administrators to take action to guarantee that all investments in commercial properties built in the last ten years have long-term warranties in the form of latent defects insurance. This covers the risks associated with defective design, workmanship or materials, and is insurance backed from day one.

- Pensions Age March 2009

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