A leasehold property has many differences to how a freehold property operates, aside from the obvious additional charges you inherit such as ground rent and service charges. Essentially, a leasehold property means that you only own a lease agreement, and the freeholder owns both the property, and land. So what does this mean when it comes to building insurance for a leasehold flat?
Do I Need Building Insurance For A Leasehold Flat?
Building insurance is still required for a leasehold property, but this is organised annually by the freeholder of the building. Whilst it is the freeholders responsibility, it is the leaseholder that bears the liability if the property was not insured. The cost of the annual building insurance is then divided between the number of dwellings in the property.
Who Pays For Building Insurance For A Leasehold Flat?
Whilst the freeholder organises the annual building insurance for the property, the leaseholder has to pay their portion of the insurance direct to the freeholder. Beware that the latest freeholder trick is to get the insurance broker to invoice each leaseholder their share of the insurance for the building and ask them to pay the broker directly. The money is not paid directly to the freeholder as per what the lease states, if you ever find yourself in this situation, never pay the broker, unless it does state otherwise in your lease.
What if the fee they are requesting seems unreasonable, or has increased significantly from the previous year? With rising building insurance costs across leasehold properties in the UK, it’s very important to challenge and ask for supporting information when required.
Depending on the terms of your lease, there is sometimes a clause that the freeholder has to be able to demonstrate that the insurance quote they have selected is; “With a reputable insurer on fair and reasonable terms which represents value for money”. As a leaseholder you are within reason to be able to request the demonstration of this. It is not reasonable for the freeholder to just explain the reason as to why it has increased without supporting information. The freeholder should have also entered into at least a couple of different quotes before selecting the chosen insurer, although this does not always happen. If you have received your annual quote and the premium has increased dramatically, this is what you should do next;
- Ask your landlord/freeholder for a written summary of the policy or an opportunity to inspect and take copies of the policy. The landlord must provide copies of this within 21 days of it being requested. You can formally ask by requesting a written summary of insurance cover under section 30A and paragraph 2 of the Schedule to the Landlord and Tenant Act 1985.
- The summary that the landlord sends to you should clearly include 1) the amount the property is insured for, 2) the name of the insurer and 3) the risks covered by the policy.
- Associated documents should also be provided which can include accounts, receipts or other documents providing evidence of PAYMENT OF ANY PREMIUMS due under a relevant insurance policy in respect of the current insurance period when the notice is served or the insurance period immediately prior to that period.
- If the landlord fails to provide you with information relating to the building insurance and they do not have a valid reason for this, they could be liable for a fine up to £2,500 if they are convicted.
- Once in receipt of the building insurance information and associated documents, leaseholders can also obtain like for like quotes and put these forward if you believe the premium or cover is much higher than previous years.
What Does Building Insurance Cover On A Leasehold?
Building insurance for a leasehold flat can provide cover on the same things that standard freehold building insurance does, protecting against things such as fire, explosion, storm, flood, theft, glass and subsidence.
The specifics of the insurance will depend on what the freeholder has taken out, you are allowed, and should request an official copy of the building insurance for your records, and for your lender. You do still need to get content cover for your own internal flat which will need to be organised by yourself.
Why Do You Need Building Insurance For A Leasehold?
Even though the freeholder has to organise the building insurance, it is the leaseholder who holds the liability. Especially if you are entering into a mortgage, you need to provide evidence to the lender that you are adequately protecting the property, and their investment in it.
Building insurance is incredibly important for any leasehold property, and mortgage owner, without it it can put your investment and property at serious risk. If you own, or are in the process of purchasing a leasehold property and are looking for more information, please check out the National Leasehold Campaign Facebook group.