Ensuring that your residential freehold is suitably insured is one of the most important things that you can do. Without building’s insurance, you as the freeholder could be left having to foot the bill for repairs, demolition, rebuilding work, and/or to replace items within your property. And considering that most buildings and the contents within have a significantly high value, it’s likely that most of us wouldn’t have the cash available.
It’s therefore crucial that you obtain the correct insurance for your freehold property, which also provides a sufficient level of cover. This means that you will need to know what type of insurance you need, how much you need to insure the building for, and what events you are and are not covered for.
With most blocks of flats throughout England and Wales, it is common for whoever owns the freehold of the building to be responsible for insuring it. This could be a company, a freeholder, or the leaseholders collectively if they have gained the Right to Manage (RTM). However, for smaller blocks i.e. those with just two flats, it can be typical for the leaseholders to have the responsibility to insure the building.
It is therefore critical that the lease for the building is reviewed to determine who the responsibility lies with. Nevertheless, leaseholders will always be obligated to pay for the building’s insurance, which is usually collected as part of a service charge.
Every insurance policy is different, so it is imperative to read the policy wording before proceeding with a purchase. Generally, a building’s insurance policy will protect the building, freeholder, and leaseholders against sudden, unforeseen incidents.
What does building‘s insurance cover?
- Water leak
- Falling tree
- Malicious damage/ vandalism
It should include cover for:
- Replacement keys including keys to communal entrances
- Alternative accommodation or loss of rent
- Communal contents including fitted carpets
- Flats that stay unoccupied for any length of time
- Employers liability to cover any person working in communal areas
- Third-party liability
- Outbuilding, annexes, private garages, gangways, conveniences, foundations or footings, extensions, lamp posts, aerials, satellite dishes and other communication equipment, street furniture, swimming pools, tennis courts, squash courts
- Fixed glass in windows, doors, fixed signs, fanlights, skylights, partitions, and fixed sanitary ware
- Underground pipes, drains, piping, ducting, wires, and associated switchgear and accessories on the premises and cables belonging to you or which you are responsible for
- Yards, car parks, roads, pavements, paved terraces, patios, paths, drives, forecourts
- Walls, gates, fences, planters, ornamental features, and statues plus tunnels, earthworks, or other natural or artificial features which form part of any buildings at the premises.
- Landlord’s fixtures and fittings including plant goods and stock, gardening equipment, CCTV systems, entry and exit systems
Risks and perils insured
Insurance policies will usually state either the specific risks or perils that the policy covers your building for. A risk or a peril is something that is unexpected and that may happen in a block of flats such as a fire, flooding, or theft. Some policies specify an ‘all risk’ policy that is more comprehensive and covers most unexpected risks.
What is not covered by building’s insurance?
Exclusions will of course vary from one policy to another, but typically they will not cover anything caused by wear and tear or any routine maintenance. For example, if a gutter or pipe has been leaking for a while or deteriorated over time without repairs, any resulting damage would not be covered.
Carpets in individual flats aren’t usually covered by buildings insurance either as they are removeable and could be reused in another property. However, carpets in communal areas of a block of flats would usually be covered. Bathroom, kitchen, and bedroom fixtures such as fitted wardrobes/units would usually be covered, whereas removeable items such as washing machines and ovens would not.
If a flat is left unoccupied for more than 30-60 days, most insurers will not provide cover for any damage caused during this time. Damage caused by some insects and birds is also unlikely to be covered, together with storm damage to gates and fences. Another significant event not usually covered by building’s insurance for a block of flats is damage caused by terrorism.
Other insurances to consider
Terrorism insurance cover
Although residential areas are unlikely to be a target for terrorists, it is possible for bombs to be constructed in a block of flats or a house, or even to be transported through residential areas, where unplanned explosions can occur. Furthermore, it is becoming increasingly common for terrorism cover to be a requirement in leases and of mortgage providers.
If the lease states that the building must be insured against explosion then terrorism cover should be obtained, and this will usually be for an additional premium. Your building will then be covered against damage caused by a terrorist act as defined up to the policy sum insured. The policy should also cover against loss of rent and alternative accommodation costs following damage that renders the building uninhabitable.
If a resident or visitor sustains an injury in or immediately around the block of flats as a result of negligence, public liability insurance will cover the policyholder against any claims. However, the policy holder’s negligence has to be proven.
If you hire or plan on hiring staff to provide maintenance services, such as cleaning of the communal areas or gardening, you are legally required to have employer’s liability insurance.
Engineering insurance and inspection
If you have a lift(s) in your block of flats, it must by law, be inspected every six months by a qualified engineer. As buildings insurance policies do not usually cover these inspections or damage caused by breakdown, this specialist insurance can be purchased.
Most insurance policies will require you to pay an excess when you make a claim. This amount is specified when taking out the insurance policy and will be payable by either the freeholder or the leaseholders, according to what is stated in the lease for the building. The excess may also be paid from the service charge account depending on the nature of the claim. Most block of flats insurance policies have a minimum £1000 subsidence excess, however, the excess for all other damage is usually negotiable.
How much do you need to insure a block of flats for? – Reinstatement value
When you obtain building’s insurance for your residential freehold you will not only need to consider the cost of repairs but also the complete cost of total demolition and rebuilding. Most policies will have set amounts that they will cover you up to for repairs but for demolition and rebuilding, you will need to calculate the reinstatement value.
The reinstatement value (also known as declared value) is the cost of completely rebuilding the block of flats following an event that destroys the building. This value will also need to include the cost of demolition, removal of debris, surveyor and architect fees. It may also be necessary to include loss of ground rent and alternative accommodation for leaseholders.
The only way to accurately calculate the reinstatement value is to use a qualified buildings surveyor. They will be able to determine precisely how much you will need to insure the building for and this figure will also be trusted by your insurer. If you’re not experienced in these matters, it can be very easy to over or under insure your block.
If you over-insure the premium payable may be too high, conversely, if you underinsure you would only receive a proportion of the property’s reinstatement value, which could be hugely detrimental. It is therefore advisable to review the reinstatement value of your block periodically to ensure that the rebuild costs have not been affected by inflation. This could affect things like construction, labour, materials, design, and planning.
Listed buildings insurance
If your building is listed, it means that it is of special historical or national importance and will be protected against any changes to its structure and appearance in order to maintain its original state. So, if the building suffers damage, whoever is responsible for repairs will be obliged to restore it to its original state. If you fail to do so, you may be fined and required to make amendments.
This means that when repairs are carried out, they may need to be done so using specialist materials and techniques applied by skilled craftsmen. The cost of such repairs to a listed building can be much higher than a modern block and the time it takes for the repairs to complete can be much longer.
For this reason, many insurance companies will not insure listed buildings, so you may have to source a specialist insurer and pay a higher premium. To find out if your property is listed, you can search the Historic England website by entering your postcode or alternatively by contacting your local council.
Generally, the contents contained within the communal areas of a block of flats are covered by the building’s insurance against theft or damage from fire or flooding. Contents inside individual flats, however, will need to be covered under a separate “contents” insurance. Leaseholders are responsible for organising their own contents insurance should they wish to do so, as it is not a legal requirement.
With each of the insurance policies discussed above, it’s important to understand that the cheapest policy may not necessarily be the best option, as it might not provide the required level of cover. It is highly advisable to obtain quotes from several insurance providers to ensure that you are purchasing the most effective policy for your freehold building, at a competitive price and to use a building’s surveyor where necessary.
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