We appreciate that insurance policies can sometimes contain complicated information which can be difficult for leaseholders to understand and make sense of. That’s why our team have created this ‘Buildings Insurance - guide for leaseholders’, to help you understand the requirement for adequate insurance of your property.
We’ve stripped back the jargon to tell you everything you need to know when examining your buildings insurance policy.
Under the terms of a long lease, it is usually the responsibility of the freeholder (Landlord or Lessor) to arrange the buildings insurance for the building of which your property forms part.
Ensuring your block is adequately insured is a major responsibility – and ensuring a competitive price as well as comprehensive protection is often a challenge. There are various factors which can affect the premium. The cheapest is not always the best and may not provide the required level of cover.
The 'Certificate of Cover'
The Certificate of Cover usually provides details of the insured party (The freeholder), the property, the property type (i.e. residential block of apartments) and the period of cover, along with the policy number.
Where this specifies ‘Automatic’ this means that there is a clause in the policy which automatically notes the interest of any mortgagee of a leaseholder’s property.
This clause advises you of the specific risks that the policy covers. A ‘risk’ is something unexpected that may happen to the block, such as fire, flood, water leaks or damage, malicious damage or theft.
Some policies cover ‘Specified Perils’ which means that the cover this policy provides is limited to those perils listed. Some policies specify an ‘all risk’ policy which is generally a much broader policy and the cover provided is more comprehensive and covers most unexpected risks. Some landlords take out policy extensions which may further insure against Loss of Rent or Alternative Residential Accommodation.
If you are unsure what your landlord’s policy covers, you can ask to see the full policy documents to satisfy yourself what the policy does cover. Your landlord cannot refuse to provide this – although some landlords may make a small charge for providing a copy.
The ‘Excess’ is the first amount of the claim that is payable by the leaseholder or landlord. This may also be paid via the service charge account depending on the nature of the claim.
Terrorism Insurance covers any damage to the buildings caused by an act of Terrorism. Most leaseholders think their block of flats is unlikely to be a target for terrorists, however, there unfortunately are other ways in which you could be affected by terrorism. The risk of terrorism extends to damage caused by nuclear, biological and radiological means. Terrorism cover is designed to cover the danger of contamination – and should provide appropriate cover in the event that, for example, a neighbour was to be formulating illegal substances in the flat next door.
Building sum insured
The ‘Building sum insured’ is the maximum amount payable in the event of a claim under the insurance policy.
Don’t assume that the cost of rebuilding, should the property be destroyed, is equal to the price that someone would pay for the property. Although house prices may have gone down it does not follow that building materials will have done so. Factor in additional costs for demolition, site clearance, surveyors, architects etc. and the cost of repairing soon rises. It is therefore vital that the landlord ensures that the insurance taken out is based on an up-to-date reinstatement valuation. Good management should ensure that these are carried out every 4-5 years by a chartered surveyor and will take into account any changes or improvements to the property.
It is important that every leaseholder understands that if the cost of rebuilding is not covered by the level of cover, that the insurer will not pay the full cost of the rebuild. The shortfall in costs can be recovered from the leaseholders by their landlord under the terms of their lease.
Public liability or property owner’s liability.
This usually covers any accidents by residents or visitors from injuries sustained after a slip, trip or fall. The policyholder’s negligence has to be proven.
This is a compulsory insurance in the UK. It covers the liability of an employer for full or part time employees.
Director’s and officer’s liability
This is something that is generally taken out by RMCs and RTMs. It protects the individual members of a management company against legal liabilities following ‘wrongful acts’ when carrying out their duties and also provides cover relating to defence costs/and or compensation for civil liability.
Engineering insurance and inspection
If your building contains a passenger lift, your landlord should have adequate insurance in place to cover insured perils such as fire, accidental damage or malicious damage. Most policies do not cover damage caused by a breakdown. It is a legal requirement to have the lift inspected every six months by a ‘competent person’ and this can be covered under a specialist Engineering Policy. Records of these inspections must be kept and a certificate of inspection issued.
If you have any queries in relation to the insurance your landlord has put in place then you should direct any queries to your landlord or their agent. Your lease will usually contain the obligatory requirements that your landlord must put in place and a prudent and conscientious landlord will choose the most effective policy he can that also offers best value – this may not necessarily be the cheapest!