Navigating the intricacies of who is responsible for the buildings insurance for a block of flats can be complex. In this blog post, we look at the specific obligations of a freeholder when it comes to buildings insurance.
Understanding your responsibilities as a freeholder is crucial to ensure the property’s’ and its residents’ protection. At Lansdown Insurance Brokers, we’ve been insuring block of flats insurance for over 20 years. Our experienced team have produced this quick guide to try to clear up any confusion.
This guide is part of our “Who is responsible for buildings insurance for a block of flats?” series. You can read the other guides in the series and view a simple at a glance visual guide here.
What is a freeholder?
In the context of a block of flats, a freeholder would usually own the entire block of flats, including the common areas and the land it’s built on. This means they have legal responsibility for the upkeep and maintenance of the building.
The freeholder of a block of flats would typically be one of the following:
- A single freeholder: i.e. the freehold is owned by a single person.
- Joint freeholders: The freehold is owned by multiple co-owners or co-freeholders.
- Limited Company freeholder: In many cases, the registered owner of the freehold is a limited company rather than an individual.
Property managers and insurance
Freeholders can appoint a property manager/agent to handle the day-to-day management and maintenance of the block, including arranging buildings insurance. The property manager is usually named as Company Secretary and, as a result, will be legally named as a joint policyholder on the insurance documents. This is especially common in larger blocks of flats.
Shared freehold and resident management
In many cases (around half of all blocks of flats, in our experience), the freehold is effectively co-owned by all the leaseholders of the individual flats in the block. This is sometimes known as commonhold or share of freehold (with the related insurance needed referred to as share of freehold building insurance.).
When this is the case, typically one of the following two structures is used by the leaseholders to manage the building:
- Residents Management Company (RMC): Here, the leaseholders typically form an RMC (or Resident’s Association) as a limited company which would then be responsible for managing the building, including arranging buildings insurance. Leaseholders may be named as directors on the RMC to meet legal requirements.
- Right to Manage (RTM): If leaseholders don’t want to set-up a limited company, they can establish an RTM, a separate entity that handles building management and insurance.
Is the Freeholder responsible for buildings insurance for a block of flats?
Generally, the freeholder of a block of flats is legally responsible for arranging and maintaining buildings insurance.
This block of flats buildings insurance policy (which may also be referred to as freeholder insurance or freeholder buildings insurance), which would usually be in the freeholder’s name, covers the structure of the building, including the common areas and exterior walls.
However, Freeholders are not responsible for the contents insurance of individual flats. Leaseholders or tenants need to arrange their own contents insurance to cover their personal belongings.
Who pays for buildings insurance in a block of flats?
Although the freeholder is responsible for arranging the insurance, in most cases the costs of buildings insurance for a block of flats will be passed on to the leaseholders. Here’s a breakdown of how the process typically works…
- Freeholder arranges the policy: The freeholder, usually through a specialist broker like Lansdown Insurance Brokers, is responsible for finding and arranging suitable buildings insurance for the block of flats.
- Cost shared by leaseholders: The cost of this insurance is then typically passed on to the leaseholders via their service charge.
- Splitting the cost: The way this cost is split can vary. It could be divided equally among all flats, or proportionally based on the size of each flat (i.e. larger flats pay a higher share).
What does buildings insurance cover in a block of flats?
While cover will vary, depending on the type of building, typically buildings insurance cover will cover damage to the building by fire, storm damage, flooding, burst pipes, subsidence, malicious damage etc.
Some mortgages may require specific buildings insurance cover. For example, if a mortgage company specify that an “all damage” policy must be in place, this must usually include terrorism cover.
If the block of flats has a lift, then specialist blocks of flats insurance policies will usually include cover for issues related to this. At Lansdown, this specialist engineering cover can also extend to stairlifts, car lifts, and air conditioning units. We also include lift inspections as part of the insurance package, to ensure legal obligations for lifts to be checked twice a year are met.
Recent changes and increased transparency
Historically, there have been concerns that some freeholders might be charging too much for buildings insurance, leading to disputes between them and leaseholders.
This came to the fore following the tragic Grenfell Tower fire when the insurance landscape for multiple occupancy buildings (MOBs) underwent a seismic shift. With increased concerns around the risks of certain types of cladding, many freeholders were faced with soaring buildings insurance premiums which they typically passed directly on to leaseholders via their service charge.
In 2021, the Financial Conduct Authority (FCA) implemented Fair Value measures to ensure that insurance premiums are fair and reflect the associated risk. One year later, the FCA, along with the Department for Levelling Up, Housing and Communities, conducted an investigation and issued a report on their findings.
The report highlighted many concerns. As a result, new regulations were introduced in 2024 regarding Multi-Occupancy Building Insurance (MOBI). These MOBI regulations aim to protect the interests of leaseholders, ensuring that they are treated as customers and have a clear understanding of insurance costs. Key changes include:
- Increased transparency: Leaseholders now have access to more information about their insurance policies, including the factors influencing premium increases and the breakdown of costs.
- Enhanced consumer protection: Leaseholders have greater rights to challenge excessive insurance costs and seek redress
- Eliminate unfair practices: Remuneration practices like commission sharing with property managers that don’t benefit leaseholders should be eliminated.
- Clearer pricing: Brokers must now present the buildings insurance price per flat, with options for even splits or percentage size-based splits, depending on the freeholders’ stated requirements.
These reforms mark a significant step forward in protecting the rights of leaseholders and ensuring that freeholders are held accountable for the insurance arrangements they make for their properties.
Need specialist advice?
Are you responsible for the freehold of a block of flats? Lansdown Insurance Brokers work closely with freeholders, property managers, and Residents Management Companies to ensure the right block of flats insurance cover is in place at a competitive price.
We can help you navigate the legalities, ensure compliance with MOBI rules, and find the best possible deal for your block of flats. Get in touch with our expert team to find out more.