Who Is Responsible for Arranging Buildings Insurance?
In most leasehold developments, the responsibility for arranging buildings insurance rests with the Freeholder, Residents' Management Company (RMC) or Right to Manage Company (RTM), depending on the ownership and management structure of the building.
The responsibility is usually set out clearly within the lease and forms part of the landlord's or management company's obligations.
The cost of the insurance is typically recovered through the service charge and shared between leaseholders in accordance with the terms of their lease.
For this reason, it is important that the policy provides appropriate protection whilst also delivering value for money.
What Should a Block Insurance Policy Cover?
Every development is different, but a comprehensive buildings insurance policy will typically include:
Buildings Insurance
Cover for the structure of the building, including:
- Roofs
- Walls
- Floors
- Foundations
- Communal areas
- Permanent fixtures and fittings
- Garages and outbuildings (where applicable)
Property Owners' Liability
Protection against claims made by third parties who suffer injury or property damage arising from the ownership or management of the building.
Employers' Liability
Required where the management company directly employs staff such as caretakers, cleaners, gardeners or maintenance personnel.
Directors' and Officers' Liability Insurance
Protection for volunteer Directors of RMCs and RTM Companies against claims arising from alleged wrongful acts, errors or omissions whilst carrying out their duties.
Engineering Inspection and Insurance
Cover and statutory inspections for equipment such as:
- Passenger lifts
- Goods lifts
- Disabled access lifts
- Automatic gates
- Barrier systems
- Pressure systems
Additional Covers
Many policies also include:
- Trace and Access
- Loss of Rent and Alternative Accommodation
- Terrorism Cover
- Legal Expenses
- Subsidence
- Escape of Water
- Accidental Damage
The exact level of cover will depend on the insurer, broker and the specific requirements of the development.
The Importance of the Correct Sum Insured
One of the most common mistakes made by Freeholders and Management Companies is under-insuring a building.
The sum insured should reflect the full cost of rebuilding the property from the ground up following a total loss. This is known as the reinstatement value or rebuild cost.
Importantly, this is not the same as the market value of the property.
A proper rebuild cost assessment should take into account:
- Demolition and site clearance costs
- Professional fees
- Construction costs
- Inflation
- VAT where applicable
If the building is under-insured, insurers may apply the principle of average, meaning they could reduce the amount paid on a claim, leaving leaseholders responsible for a shortfall.
For this reason, rebuild cost assessments should normally be reviewed every three to five years, or sooner if significant alterations have been carried out.
Insurance Commissions and Remuneration
One area that often generates questions is insurance commission.
In the leasehold sector, it is common for insurance brokers to pay a reasonable level commission to managing agents in connection with arranging and administering insurance policies.
These commissions may compensate parties for:
- Obtaining quotations
- Administering renewals
- Managing insurance records
- Handling policy documentation
- Assisting with claims
- Liaising with brokers and insurers
However, commissions and remuneration arrangements should be transparent and capable of being justified.
Leaseholders are entitled to request information regarding insurance costs and associated remuneration arrangements, and managing agents should be prepared to explain the services provided in return.
The existence of a commission does not automatically mean that insurance is overpriced or unreasonable. The key question is whether the overall premium represents fair value and whether the insurance arrangements are in the best interests of the building and its leaseholders.
Common Misconception: The Cheapest Policy Is Always the Best Policy
Many leaseholders assume that the cheapest insurance quotation is automatically the best option.
In reality, the cheapest policy can sometimes provide significantly less protection.
Differences between policies may include:
- Higher excesses
- Lower policy limits
- Reduced alternative accommodation cover
- No terrorism cover
- Limited trace and access cover
- More exclusions
- Poorer claims handling service
When comparing insurance quotations, it is important to consider the overall level of protection rather than simply the annual premium.
A good insurance policy should provide appropriate protection, competitive pricing and a reliable claims service when problems arise.
Transparency and Leaseholder Rights
Insurance arrangements should be transparent and capable of being justified.
Leaseholders are entitled to receive information regarding the insurance arrangements for their building, including:
- The name of the insurer
- The level of cover provided
- The annual premium
- Policy schedules and summaries
- Details of any commissions received by managing agents, brokers or landlords
Managing agents, landlords and management companies should ensure that insurance arrangements represent fair value and are capable of being explained to leaseholders.
Leaseholders who believe insurance arrangements are unreasonable may have rights to challenge costs through the First-tier Tribunal (Property Chamber).
Why Professional Insurance Advice Matters
Buildings insurance is one of the most important protections for any residential development.
A poorly structured policy can expose leaseholders, Freeholders and Directors to significant financial risk in the event of a major claim.
At Archery Estates, we work closely with a panel of specialist block insurance brokers and insurers to help ensure that developments are appropriately protected, competitively insured and compliant with lease requirements.
We regularly review insurance arrangements, rebuild cost assessments and policy coverage to help ensure our clients receive the protection they need at a competitive premium.
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Need Advice?
Buildings insurance is one of the most important protections for any residential development.
Whether you are a Director, Leaseholder, Freeholder, RMC or RTM Company, our experienced team can help review your insurance arrangements and ensure your building is appropriately protected.
Call us today for a free, no-obligation conversation to see how we can help you.
📞 020 3488 2093
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