Freeholder Building Insurance UK: A Practical Guide for Landlords and RMCs

Freeholder Building Insurance UK: A Practical Guide for Landlords and RMCs

If you are a freeholder of a property containing flats anywhere in the UK, the lease almost always requires you to arrange comprehensive buildings cover for the whole structure. Freeholder building insurance UK is a specialist class of policy designed to meet that duty, protect the building and ensure mortgage lenders' interests are recognised. This guide explains what the policy must include, how the UK market is structured and how to make sure you are not overpaying or under-covering.

What Freeholder Building Insurance Covers

A standard UK freeholder buildings policy is much wider than a typical homeowner buildings policy. As a minimum it should cover:

• The full structure of the building — walls, roof, floors, foundations
• Communal internal areas including stairs, hallways, lifts and plant rooms
• Communal external areas such as gardens, boundary walls, paths, gates and external lighting
• Fixed installations: water tanks, central heating, communal wiring and pipes
• Outbuildings, bin stores, garages and any car parking structures
• Standard perils — fire, lightning, storm, flood, escape of water, theft, malicious damage, impact and subsidence
• Property owners' liability cover of at least £2 million, typically £5 million
• Loss of rent and alternative accommodation cover for each leaseholder
• Trace and access cover for hidden leaks
• Employers' liability if anyone is paid to work on the building, including part-time cleaners or caretakers

Who Has to Arrange It?

The duty to insure is created by the lease and falls on whoever owns the freehold. In practice that is one of:

• An individual private freeholder who retains the freehold of a converted house
• A residents' management company (RMC) where leaseholders share the freehold
• A right-to-manage company (RTM) where leaseholders have exercised statutory rights
• A property investment company holding a block of flats as part of a portfolio
• A registered social landlord or housing association for some social housing stock

Whoever holds the freehold is the policyholder and is contractually responsible for keeping cover in force and recovering the premium through the service charge.

How the UK Market Is Structured

Freeholder building insurance is written through a relatively small number of specialist insurers and Lloyd's syndicates, accessed by leasehold buildings brokers. The main routes to market are:

• A specialist broker who places business with several leasehold insurers
• The freeholder's managing agent, who often has block schemes in place
• Direct via a small number of specialist insurers — usually less competitive for small blocks

For most freeholders, going through a specialist broker produces better pricing and broader cover than approaching insurers direct, because the broker can compare multiple terms and negotiate on the rebuild figure and excess.

Setting the Sum Insured Correctly

The sum insured is the most important number in the policy. It should reflect the full rebuild cost of the building — not the market value — and should include allowances for:

• Demolition and debris removal
• Professional fees (architects, surveyors, planning consultants)
• VAT on rebuild costs where applicable
• Compliance with current building regulations, which may be stricter than the original construction
• Listed building or conservation area requirements, which can significantly increase rebuild costs

Most lease specialists recommend a RICS rebuild cost assessment every three to five years. Underinsurance is the single most common claim problem in UK leasehold buildings policies and almost always traces back to a sum insured that has not been reviewed since the building was bought.

Typical UK Premium Bands

Premiums vary by location, construction, claims history and rebuild figure, but typical UK ranges for standard residential freehold blocks are:

• Two-flat conversion in a Victorian house: £450 to £900 per year
• Four to six-flat purpose-built block: £900 to £1,800 per year
• Twelve to twenty-flat purpose-built block: £2,500 to £5,500 per year
• Large blocks with lifts and communal plant: £6,000 upwards
• Listed buildings, flat-roofed blocks or buildings in high-risk flood areas: 30 to 100 per cent premium loadings

Post-Grenfell, blocks with external wall systems requiring an EWS1 form may attract significant additional loadings or, in some cases, restricted availability.

Recovering the Premium Through Service Charges

The premium is almost always recovered from the leaseholders through the service charge in the proportions set out in their leases. For this to work cleanly:

• The lease must include the buildings insurance premium as a recoverable service charge cost
• The freeholder must hold the policy in the name of the freeholder or management company, not in personal names
• Premiums must be reasonable and capable of justification if challenged at the First-tier Tribunal
• Leaseholders are entitled to a written summary of cover on request under the Landlord and Tenant Act 1985

Common Mistakes to Avoid

Five recurring problems we see on UK freeholder buildings policies:

• Insuring at market value rather than rebuild cost — usually means the building is underinsured by 30 to 50 per cent
• Forgetting to add property owners' liability or setting it too low
• Failing to declare known defects (cladding, subsidence history, flat roofs) which voids the policy on a major claim
• Letting cover lapse during a freehold sale or RMC restructure
• Not noting the interest of mortgage lenders, which can complicate claims involving lender consent

What Changes If the Freehold Is Owned by an RMC?

The principles are identical, but the practicalities shift. An RMC has to:

• Hold the policy in the company name with the lender interests noted
• Document the renewal decision in board minutes
• Provide leaseholders with a summary of cover on request
• Allocate the premium to each flat in the proportions in the leases
• File the policy schedule with the company's annual accounts as part of the audit trail

For related guides see freeholder insurance policy, freeholder building insurance comparison and buildings insurance for flats.

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