Buildings Insurance – Freeholders have the responsibility but leaseholders bear the risk

As leasehold owners of flats are well aware, the responsibility for arranging buildings insurance will normally fall to the freehold owner of the building as a whole. In those situations, despite the leaseholder having no power over the selection and terms of the insurance, it is the leaseholder that will almost always bear the cost of the same. The opportunity for disputes to arise over the costs of the insurance is clear, with a recent example reported in The Times of a number of leaseholders in Sutton Coldfield being surprised to find that their annual insurance bill had risen by some 50% (£1,300) by comparison to the previous year, with no apparent explanation for the rise in premiums.

Insurance costs are just one area where leaseholders may find that they lack control over buildings insurance. A buildings insurance policy will contain conditions that must be complied with by the policyholder in order for the policy to respond to indemnify a claim. There will also be exclusions which prevent certain types of claims being made against the policy. If conditions are breached or specific types of claims are excluded, a leaseholder may find themselves struggling to have an otherwise legitimate claim covered under their policy. By way of example:

• A buildings insurance policy might specifically require that the property has a working fire alarm system with specific terms as to the ongoing maintenance and testing of that fire alarm system
• A leaseholder would not typically have any responsibility as to fire alarm maintenance or testing and this would be in the hands of the freeholder / an appointed management company
• If the specific terms were not followed and a claim was made under the buildings insurance policy as a result of a fire, a claim against the policy might be declined by the insurer as a result of a failure to comply with the specific conditions relating to fire alarm systems, maintenance and testing

Practical Steps

Leaseholders are able to take steps to inform themselves and reduce these risks, including:

• Obtaining key details relating to the policy, its conditions and exclusions from their Landlord. Under the Landlord and Tenant Act 1985, a leaseholder who pays towards buildings insurance may ask the freeholder for:

– a Written Summary of Insurance – this will contain headline details of the policy including the types of claims the policy will cover, the policy period etc;

– access to the Policy Documents to review and take copies of the same

• If leaseholders become aware of clear deficiencies in elements of the building which are essential for its ongoing safety e.g. fire alarm systems, security systems, they should ensure that these are notified to the freeholder at the earliest opportunity. If there is a management company, leaseholder representatives should be made aware of any issues that arise so that they can ask the appropriate questions and seek evidence and confirmation of how these issues are resolved.

IBB Law LLP has acted for policyholders and insurers (including Lloyds’ of London Syndicates) advising on the interpretation of insurance policy wordings and is able to assist and advise leaseholders and freeholders in respect of disputes relating to buildings insurance policies or disputes relating to other forms of insurance policies.