Whether the property has only one leaseholder, multiple leaseholders or tenants who rent from the leaseholders, the entire building will need to be insured.
As the freeholder, you may decide to pay the buildings insurance and then recoup these costs via service charges to leaseholders.
While it is not obligatory for a freeholder to take responsibility for arranging buildings insurance for a whole property, it is the usual procedure for a building divided into flats. And if, as is common, it is stated in the lease agreement that the freeholder is responsible for buildings cover – then the freeholder must do so as a matter of course.
In the rare instance that the freeholder hasn’t arranged cover, the onus would be on leaseholders at the property to sort out buildings insurance. If there are multiple flats in the building, the leaseholders could buy a joint policy rather than multiple policies and share the cost. This might prove more cost effective.
It is frequently the case that the freeholder is also the landlord and thereby in charge of maintaining and repairing the exterior and common parts of a building; this might include a garden area, a communal stairwell/hallway or a shared driveway. Given the fact that they oversee the maintenance of the property, it often makes sense for the landlord or their property agent to arrange buildings insurance.
Buildings insurance for freeholders will include what you would normally expect to see in a policy for any property - for example cover for any damage due to fire, theft, accidental damage, water damage, storm and flood.
In addition, as the freeholder you could consider adding extras to the policy depending on the size and type of property you are renting out.
For instance, you might want to include alternative accommodation insurance or cover for loss of rent. This would come into effect if your property is uninhabitable for any reason and tenants are forced to move out.
You may want to insure outbuildings such as garages, lock-ups or communal gardens areas.
You may want your policy to include one excess payment per incident. The reason for this is if fire or flooding damages several flats within your freehold property, you are only liable for one excess payment per total claim.
If you own a large block including, say 15 or more tenants, replacement key cover might prove a prudent move as over time residents are likely to lose keys for the main and communal entrances. This could prove quite costly over time. If there are large communal areas, you might want to insure any carpets fitted there.
Employers’ liability is useful as it covers the risk of anyone having an accident or loss while working in communal areas within the property. Third party liability cover is another feature you might want to include too - this means if the property causes harm to someone or their property (for instance roof tiles fall or a wall collapses) – if they sue, you are covered.
Liability cover usually comes in bands of £2m, £5m or £10m – with the higher amounts normally applying to larger blocks of flats.
Buildings cover for freeholders who own a property with multiple flats or ‘units’ are often referred to as block insurance. This means the buildings cover will need to be taken out as a single policy, irrespective of the number of flats that there are in the building.
In some instances, the freehold of a property is shared. In which case, a joint freeholder building insurance policy is not difficult to arrange. It is not much different to getting a joint mortgage where both parties have a legal tie and liability. A joint freeholder building insurance policy is usually when there are only 2 owners within a building and they both own the freehold of their respective homes.
One of the advantages of a joint policy is that the handling of claims can become a nightmare if there are separate policies with the 2 insurers disputing who is responsible for what.
Imagine there is damage to the roof and chimney pots. You’d imagine this would fall under the upstairs flat owner’s policy, right? No, not necessarily. The lease might state that roof maintenance is a joint responsibility.
This illustrates one of the major problems with shared freehold properties, when freeholders take out individual insurance policies that can leave gaps in cover for the building and lead to lengthy claims disputes.
If, as a joint freeholder, your property gets broken into and you both have separate home insurance policies – both policies will pay out but there will be a dispute over communal areas. With a single policy that names the freeholders individually, claim should be easier to handle and any duplication of insurance is avoided.
In some cases, leaseholders in apartment blocks or converted flats will hold the freehold of the property via a company of which all the participating leaseholders will be members. The benefit of this is that decisions relating to the property can then be taken under the rules of company law, by the majority of shareholders. Maintenance works, service upgrades and buildings insurance can be arranged and payment apportioned by those who live in and have an active interest in the property.
The downside of such arrangements is that the joint owners may not agree on maintenance work needed on the building. Some want to spend money on improvements or repairs and others don’t. The result is a deadlock where nothing gets done.
There is a way to overcome such a stalemate. If those sharing the freehold own the property jointly on the title deeds, they can sign a Declaration of Trust which will set out, in a binding legal document, the relationship and obligations between the co-owners.
A Declaration of Trust can help in other ways too. For instance, clarifying that where the share of freehold relating to each flat is transferred (when a flat is sold) that the other joint owners agree to cooperate in transferring the freehold on sale.
There is often a provision for alternative dispute resolution, within a Declaration of Trust. This means any issues of disagreement relating to maintenance, repair and property management can be referred to a third party surveyor or arbitrator. Under the terms laid down, all parties agree to be bound by their decision.
It may be that with a smaller property you can arrange insurance as a freeholder quite simply with a host of well-known insurance companies but for more complex arrangements you may need to contact specialists in the flats and block of flats market.