What do you need to know about Building Insurance for flats?
At One Broker we often get a lot of questions about arranging Buildings Insurance for flats, from large purpose-built blocks to converted houses and office blocks. We also get asked about who is responsible for organising and paying for it. This can be a complicated area, so to demystify the subject, Associate Director Rob Mills of our Lettings Insurance Department has shared his insights on the matter.
Do you need Buildings Insurance for a flat?
Although Building Insurance is not a legal requirement, you still need to protect your investment and liabilities as a property owner, leaseholder or occupier. Most mortgage lenders will want to have Buildings Insurance in place, whether you are buying a house or a flat.
When it comes to flats, the responsibility for organising and paying for Building Insurance can become a little complicated, and this is due to the differences between freehold and leasehold ownership.
Freehold and leasehold ownership
A freeholder is someone who owns both the property and the land it stands on.
A leaseholder, on the other hand, has purchased a long-term lease that gives them the right to live in the property for an agreed time (which can range from 99 years to 999 years). Leasehold properties are often flats.
Because of these differences, it is the freeholder who is responsible for arranging Building Insurance for a property containing flats. However, this responsibility can also be delegated to a group or company of leaseholders.
Residential Management Companies and Estate Management Companies
If a freeholder does not want to be involved in managing a property, a Residential Management Company (RMC) is often set up. This is run by leasehold owners to look after a block in terms of maintenance, upkeep of communal areas and insurance.
An RMC will sometimes self manage and arrange its own maintenance and insurance.
However, as legislation is getting more complicated, it is more likely that they will instruct an Estate Management Company (EMC) to deal with this for them. An EMC will arrange insurance on behalf of the RMC, the cost of which will then be split between each individual
leaseholder as part of an annual service charge.
You will often find that the EMC will work with an insurance broker to identify and assess risks, and to build a relationship with an insurance provider who can assist with claims.
What does Building Insurance cover in flats?
Building Insurance for flats will cover the structure of the block and provide financial protection if it is damaged or destroyed. It will typically also cover standard fixtures and fittings in the flats themselves, such as bathrooms, as well as communal areas such as stairways and corridors.
However, if the leaseholder upgrades any fixtures and fittings, such as putting in a higher spec kitchen, the Building Insurance for the block will no longer cover it.
Building Insurance will also not cover any contents or possessions within the flat.
What happens if you rent a flat?
If a leaseholder has purchased a flat to let out to residents, then they need to ensure that they as a landlord have appropriate cover in place, such as Public Liability Insurance. This is because insurance arranged for the whole block will only apply to public areas – not to the individual flat. Building Insurance is also usually a requirement in most Tenant Agreements, so you will also need to check that the freeholder or RMC of your flat has it in place.
If you are the one renting a flat as a tenant, you will not have to arrange your own Building Insurance. However, it is a good idea to get your own Tenants Contents Insurance to protect your possessions. This is because a landlord’s content policy will only cover the items that they have provided.
How to find out what insurance you need
If you are unsure about what insurance you need to get or what you are responsible for, you can talk to your letting or estate agents. They may have a relationship with an insurer or broker who can help you to arrange the right insurance.
Of course, you can also come to me with any questions you may have by calling 01223 792262 or emailing Rob.Mills@Onebroker.co.uk.
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