Buildings Insurance for Flats with Leasehold: What You Need to Know

Buildings Insurance for Flats with Leasehold: What You Need to Know

Buildings insurance for flats with leasehold sits at the intersection of property law, insurance and service-charge accounting. The basic rule is straightforward: the freeholder insures the building, the leaseholders insure their own contents. The detail, however, has caught many leaseholders and freeholders out. This guide explains who is responsible, what the policy should cover, and what to do if you think the existing arrangements are not fit for purpose.

Who Insures What

In almost every leasehold flat in England and Wales the position is as follows:

• The freeholder insures the structure of the building, the communal areas, and the fixed installations. They take out a single block buildings policy.
• The leaseholders insure their own contents — furniture, electronics, clothing and personal possessions — and any internal improvements made to the flat.
• Each leaseholder pays a share of the buildings insurance premium through the service charge, calculated according to the proportion set in the lease.

What the Lease Actually Says

Before doing anything else, read the insurance clauses in your lease. A typical long lease will contain:

• A covenant from the freeholder to insure the building against a specified list of perils, for its full reinstatement value
• A covenant from the leaseholders to pay their share of the premium
• A clause requiring the freeholder to use the insurance proceeds to reinstate the building if it is damaged or destroyed
• A clause obliging the freeholder to disclose the insurance details to leaseholders on request

If the lease is silent on a particular point, the default position under the Landlord and Tenant Act 1985 and 1987 generally applies.

What the Buildings Policy Should Cover

A leasehold flats building should be insured under a specialist freeholder buildings policy that covers:

• The full structure of the building, including the parts within individual flats such as floorboards, ceilings, internal walls (subject to the lease definition of demised premises)
• Communal areas: hallways, stairs, lifts, gardens, bike stores, bin stores
• Outbuildings, boundary walls and other features within the property boundary
• Property owners' liability of at least £2 million
• Loss of rent and alternative accommodation following an insured event
• Employers' liability if staff are employed

Leaseholders' Rights

Leaseholders are not powerless in this arrangement. Several statutory rights protect their position:

• Right to a summary of cover. Under section 30A of the Landlord and Tenant Act 1985, leaseholders can request a written summary of the insurance and inspect the policy in person.
• Right to challenge unreasonable costs. If leaseholders believe the buildings insurance premium charged through the service charge is unreasonable, they can apply to the First-tier Tribunal (Property Chamber).
• Right to nominate insurers in certain circumstances under the Leasehold Reform, Housing and Urban Development Act 1993.

Common Issues With Leasehold Buildings Insurance

In practice, several recurring problems come up with buildings insurance for leasehold flats:

1. Under-insurance. The sum insured has not been reviewed for years and no longer covers the actual rebuild cost.
2. Inflated premiums. The freeholder uses a single insurer without testing the market, and leaseholders see the premium rise sharply year on year. Recent regulatory changes by the FCA require greater transparency around broker commissions in this market.
3. Exclusions the leaseholders did not know about. Flood, subsidence or escape of water exclusions are sometimes imposed without leaseholders being told.
4. Claims handled poorly. Disputes over what the policy covers can leave individual leaseholders without a usable home while reinstatement drags on.

What Leaseholders Should Insure Themselves

Even with comprehensive buildings cover in place through the freeholder, individual leaseholders should arrange their own contents insurance. This covers:

• Furniture, electronics, white goods, clothing and personal items
• Money, jewellery and high-value items (subject to single-item and total limits)
• Accidental damage to your own possessions
• Personal liability for damage you cause to other parts of the building or to your neighbours
• Tenants' improvements you have made to the flat that fall outside the lease definition of the building

What to Do If You Are Concerned

If you are a leaseholder concerned about your block's buildings insurance, the first step is to request a summary of cover and the policy document from the freeholder or managing agent. Compare the premium and cover against the wider market. If the cover looks inadequate or the price unreasonable, consider raising it formally at the next service-charge consultation or, in the right circumstances, applying to the First-tier Tribunal.

For more background see our guides on leasehold property insurance, leasehold buildings insurance law, and building insurance for leaseholders.

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