One of the main reasons that many leaseholders undertake the Right To Manage is due to the high cost of Buildings Insurance. In English and Welsh Law, by default, the freeholder is automatically granted the right to insure a building of a block of flats. In fact this right is enshrined by virtually all leases which are signed by the landlord (freeholder) and tenant (flat owner). The leases state that the landlord is responsible for insuring the building, and the entire cost of this s borne by the flat leaseholders.
The issue with building insurance for blocks of flats is that the landlord or freeholder is responsible for placing the policy, but the flat owners or leaseholders are responsible for paying the premium. This creates an inherent conflict of interest because the landlord has no reason or incentive to obtain a competitively priced policy. In fact the situation is worse than it first appears as there is often a substantial insurance commission paid by the insurer to the person or company placing the insurance policy placing the policy. Buildings insurance commission may be paid to the freeholder, intermediate landlord or managing agent without disclosure to the flat owners.
Buildings Insurance Commissions
Insurance commissions payable to landlords vary widely and can be anything up to a very generous thirty percent of the premium. What is more, there is no requirement or regulations that require the landlord to disclose the amount of commission they are receiving, or in fact no requirement to disclose any commission received at all. Some of the larger UK landlords do not insure each building individually, instead placing a group policy with another company (can be a related company), and then apportioning a cost for insuring a given building, which cannot be independently verified.
Right To Manage Process
When leaseholders go through the Right To Manage process and obtain the RTM for their building, one of the first actions that many company directors take is to review the current building insurance policy. In the vast majority of cases, the cost of insuring their building is immediately reduced. Whether the reduction is achieved by being able to obtain competitive quotations in the market, the elimination of insurance commissions, or transparency of the insurance provider, immediate savings are achieved. In many cases the right to manage brings buildings insurance savings of 10% to 30%, and in some extreme cases, savings of more than 100% have been made.
A flat buildings policy covers the structure of the entire building, including the roof and walls. The policy will normally cover damage by fire, storm damage and lightning, earthquake, frost damage, smoke, riot, malicious acts, falling trees or branches, subsidence, landslip, and water damage by water or oil from tanks or pipes. Cost and expenses relating to identifying and location the source of water or oil damage is often covered. Terrorism damage is usually an optional extra, at the landlord’s discretion.
The Association of British Insurers (ABI) represents around 400 insurance companies, which between them account for over 98% of the business of UK insurance companies. The Association represents insurance companies to the Government and to regulatory and other agencies, and it provides a wide range of services to its members. https://abi.bcis.co.uk/about_building_insurance/about.aspx