Edward Brown of Lumley Letsure Limited, a British Insurance Brokers Association (BIBA) scheme provider and specialist in insurance for let properties and blocks of flats, explains what flat owners need to consider when it comes to their insurance requirements.
For investors looking to purchase flats to add to their property portfolio, obtaining correct insurance cover can raise a number of questions. Who can arrange cover? What needs to be insured? How does this differ from a standard freehold property?
There are a number of differences between insurance arrangements for freehold and leasehold properties; there are even variances in how insurances are placed for properties in Scotland compared to those in England, Wales, or Northern Ireland.
For blocks of flats in England, Wales and Northern Ireland, the leaseholders usually form or become part of a resident management company. This management company then arranges the buildings insurance for the block as a whole. The company usually charges each leaseholder for a proportion of the insurance premium; often this is included in the general fees charged in the lease agreement for general upkeep of the block.
For properties based in Scotland, each flat owner is responsible for insuring their own proportion of the block and, as such, there is no need to form a management company, therefore each flat owner should ensure their buildings policy offers adequate cover for their requirements.
Offers protection
A number of risks can be covered under buildings policies. As well as the obvious perils you would expect to be covered against (fire, lightning and explosion, for example), policy holders also should look to ensure cover includes property owners’ liability and employers’ liability. Property owners’ liability covers legal liabilities against death or injury to members of the public or loss of damage to property and employers’ liability, a legal requirement if staff are employed, offers protection for death or injury to hired employees such as gardeners, maintenance workers, caretakers, and so on.
Although they may not set up the policy themselves, leaseholders should ask their management company for a copy of the policy and ensure it meets their requirements.
Leaseholders also need to be aware that it is their responsibility to set up policies for the contents in their flats. This will be taken out on a separate policy to the management company’s block buildings policy. Ideally, contents policies also should provide cover for liability risks. Owners of Scottish flats should be able to add contents on to their buildings policy to provide full cover. As well as ensuring that buildings and contents are adequately covered, there are a number of other insurance policies available that are specifically associated with blocks of flats:
Directors’ & officers’ liability: this insures the management company against situations where interested parties may seek to claim against the management company for personal or other liabilities; and often will cover for defence costs and legal representation.
Engineering insurance: this is useful for blocks of flats where there are communal lifts and machinery and can cover for the regular inspections of machinery, as well as insuring against sudden breakdown and accidental damage of equipment.
Terrorism insurance: this covers damage to the block of flats in the event of a terrorist act. Due to the complex nature of the various risks associated with blocks of flats, it is recommended that management companies and leaseholders seek professional advice when arranging their policies. Insurance brokers can offer independent and impartial advice helping to find cover suitable to the individual risk.
BIBA’s Bibalet scheme offers a range of insurances for blocks of flats through its Portfolio Solutions team. For information, or to obtain a quotation, contact 0844 561 7070.
BIBA represents more than 2,400 insurance brokers and intermediaries across the UK. All BIBA members are part of the regulated community, who pride themselves on the professional advice and range of products and services they offer, always focused on the clients’ individual needs and requirements. BIBA is the voice of the industry – advising members, the regulator, consumer bodies and other stakeholders on key insurance issues.
