One of the most common causes of disputes in leasehold buildings is an escape of water claim.
A pipe bursts, a plumbing fitting fails, or a washing machine leaks, resulting in damage to another flat. Almost immediately, the management company, RTM directors, and managing agent find themselves dealing with frustrated leaseholders, insurance claims, and questions about who should pay.
In our experience, much of the conflict arises from misunderstandings about how buildings insurance and liability actually work.
The Most Common Misconception
The first question we often hear is:
"The leak came from Flat 12, so why isn't the owner of Flat 12 paying for everything?"
Whilst this may seem logical, it is not always how the law or the insurance policy works.
The fact that a leak originates from a particular flat does not automatically make that leaseholder liable for the resulting damage.
Source of the Leak vs Liability
There is an important distinction between:
- The flat where the leak originated.
- The party legally liable for the damage.
For example, a concealed pipe may burst suddenly without warning despite being properly maintained.
In that situation:
- The leak originated from a flat.
- The leaseholder may have done nothing wrong.
- There may be no negligence.
- There may be no legally liable party.
This is often where directors find themselves caught between two leaseholders who each believe the other should pay.
What Does the Buildings Insurance Cover?
Most buildings insurance policies cover damage caused by escape of water, regardless of where liability lies.
Subject to the policy wording, this will typically include:
- Ceilings
- Walls
- Decorations
- Plasterwork
- Fixed flooring
- Fitted kitchens
- Bathrooms
- Other parts of the building
The insurer's primary objective is usually to reinstate the damage caused by the insured peril.
What Is Not Covered?
Buildings insurance does not normally cover:
- The cost of repairing the source of the leak.
- The policy excess.
- Leaseholders' personal belongings.
- Furniture and contents.
Every leaseholder should maintain their own contents insurance policy.
The Excess – Where Most Disputes Arise
In many cases, the buildings insurer will pay for the damage but will deduct the policy excess.
This often leads to disagreement over who should bear that cost.
Where negligence or liability is clear, it may be reasonable to seek recovery of the excess from the responsible party.
However, where liability cannot be established and the leak is simply the result of an unforeseen failure, directors should be cautious about automatically assigning blame.
Many disputes escalate because leaseholders assume that the owner of the flat where the leak originated must automatically pay the excess. In reality, this is often not the case.
A Practical Approach for RTM and RMC Directors
When dealing with escape of water claims, directors should consider the following questions:
1. Is the damage covered by the buildings insurance?
If so, the focus should be on restoring the damage promptly.
2. Is there evidence of negligence?
For example:
- Was a known leak ignored?
- Was defective work carried out?
- Was maintenance neglected?
If not, liability may be difficult to establish.
3. Is the cost greater than the policy excess?
If the cost of repairs is less than the excess, an insurance claim may not be worthwhile.
If the cost is only marginally above the excess, it may be more economical to settle the matter directly rather than submit a claim.
4. Would a commercial solution be more sensible?
Directors should remember that their role is to act in the best interests of the company and its members.
Sometimes a pragmatic solution can be more appropriate than a prolonged dispute between neighbours.
Any contribution by the RTM or RMC should be clearly recorded as a gesture of goodwill and without admission of liability.
The Role of the Managing Agent
An experienced managing agent can help by:
- Coordinating emergency contractors.
- Managing communication between leaseholders.
- Liaising with insurers and loss adjusters.
- Reviewing lease obligations.
- Helping directors understand the distinction between liability and insurance cover.
Most importantly, a good managing agent helps prevent disagreements from escalating into costly disputes.
Final Thoughts
Escape of water claims are often stressful, emotional and disruptive for everyone involved.
However, directors should remember that the source of a leak is not always the same as the party responsible for the damage.
Understanding the distinction between liability, insurance cover and the policy excess can help RTM and RMC directors make informed decisions and avoid unnecessary conflict between neighbours.
At Archery Estates, we regularly assist RTM Companies, Resident Management Companies and leaseholders with insurance claims, major losses and property damage disputes. If your development requires professional advice or support, please contact our team.