Live in a flat? Check you have the right insurance

Published by Helen Knapman on 21 February 2018.
Last updated on 27 February 2018

Live in a flat? Check you have the right insurance

If you own a flat in a conversion or in a purpose-built block, you’ll need to find out who is responsible for providing buildings insurance. You may have to take out a specialist policy or work closely with your neighbours to find the best deal.

When it comes to insuring a house, it tends to be simple – you’re usually required by your mortgage provider to have buildings insurance to cover the structure itself, and then you can choose to get contents insurance on top to cover damage to your possessions.

But if you own a flat, the situation becomes slightly murkier as you may not own the structure of the building you live in.

Paul Robertson, managing director and head of property division at broker Midway Insurance Services and 1st Shaw Flat Insurance, explains that when it comes the rules of ‘insurable interests’, you need a financial interest to insure something.

“When you buy a flat, you have no financial interest if the lease says someone else needs to insure it. A common misconception is that you can get buildings insurance in this scenario,” he says.

This is an issue affecting an ever-increasing number of people. Flat and maisonette sales in England and Wales stood at 162,914 in the year to June 2017 – up from 125,538 on the same period five years ago – according to the latest figures available from the Office for National Statistics.

Moneywise investigates how to insure a flat and how property investors who own the freehold on a block of flats – from a two-flat house conversion to a purpose-built block – can insure their building.

Who is responsible for building insurance?

To establish what, if any, insurance is needed, you first need to take it back to basics and to find out if you own your flat on a leasehold, freehold or a share-of-freehold basis. This information will be in your lease agreement.

According to consumer group HomeOwners Alliance, freehold is where you own the building and the land it stands on outright.

With a share of freehold, you own a proportion of the building and the land it stands on. For example, you may own 50% of the freehold of a house that has been converted into two flats. Up to four individual leaseholders can be named on the freehold. The freehold can also be held by a limited company with all or a number of leaseholders being shareholders.

If you’re a freeholder or have a share of the freehold, it’s more than likely you’ll be responsible for insuring the building.

Leasehold, on the other hand, is where you have a lease from the freeholder to use the home for a number of years. In this scenario, it’s likely the freeholder is responsible for the buildings insurance, which you’ll pay for through an annual service charge.

According to Mr Robertson, there are about 2.75 million flats where the freehold is owned privately – whether that’s by a property investor, management company or by private individuals who have bought the freehold.

It’s worth noting that leaseholds are most prevalent in England, Northern Ireland, and Wales. In Scotland, most properties are sold freehold.

What type of insurance do I need?

Once you’ve established whether you’re responsible for insuring the building, you then need to buy buildings insurance. Even if there are several freeholders, it is likely you will need to work together to find one policy covering the entire building.

A spokesperson for insurer Aviva comments: “If your property is a fl at or maisonette, it may be best insured as part of one policy for the whole building. In the event of a claim affecting more than one property, this reduces the likelihood of problems due to some being uninsured or insured on a different basis.”

Moneywise asked the six home insurance providers shortlisted by readers in our Customer Services Awards 2017 whether they provide buildings insurance where there’s a shared freehold, and to freeholders who own a block of flats.

Sadly, NFU Mutual – the winner of the Moneywise home insurance category – failed to provide answers despite repeated requests for confirmation on its policies. But Aviva, Churchill, Direct Line, Legal & General, and LV= outlined their policies.

As you can see from the table above, while all the providers said they will insure buildings where the freehold is shared, typically under their regular buildings insurance policies, it’s more hit and miss when it comes to one freeholder insuring a block of flats. Here, you may have to take out landlord or commercial insurance to cover the building.

UPDATE 27 February 2018: Since publishing this article, NFU has confirmed its flat insurance policy: it does sell policies for freeholders of a block of flats, and it does sell cover to freeholders where the freehold is shared by property management companies. Where cover is for shared freeholders who live in the flats, it's offered on a case by case basis. NFU Mutual policies are available direct or via its network of over 300 local agents across the UK.

Another option is to get a specialist flat insurance policy from a broker.

Martin Bridges, technical services manager at the British Insurance Brokers’ Association (BIBA), says: “There are a number of bespoke flat insurance policies on the market, which provide suitable protection for freeholders/ joint freeholders and will automatically extend to indemnify leaseholders.”

You can use BIBA’s tool (Biba.org.uk/find-insurance/) to find a broker in your area.

Specialist brokers in the flat insurance field include 1st Shaw Flat Insurance, Deacon, Midway Insurance Services and Residentsline, while Towergate specialises in flat conversions.

Is there anything else I should watch out for?

Phone a few providers to get different quotes and closely check the level of cover before picking a policy.

 LV= recommends checking that buildings insurance policies for flats include the following cover:

  • Communal areas, including communal gardens;
  • Liability cover for accidents if someone visiting hurts themselves;
  • Flats that stay unoccupied for any length of time;
  • Additional refurbishment by flat owners; and
  • Employer’s liability – if you employ security staff, for example.

Mr Robertson adds that freeholders may also want to consider taking out terrorism insurance and directors’ and officers’ insurance if you are the director of a management company or a limited company, set up by a residents’ association. These policies are typically separate add-ons.

He points out that valuations for re-building costs, which is what buildings insurance is based on, should also be considered every three years to ensure cover reflects the true value of the property. 

Leave a comment

You failed to answer the

You failed to answer the question of your headline! I'm a leaseholder: what sort of insurance do _I_ need? E.g., if there's a plumbing leak that damages the downstairs flat?

Very helpful article, thanks

Very helpful article, thanks !

One side of this vast subject was not touched on which is :

If (say) a block of flats is insured by the Residents' Management , and a sewage flood occurred in a First Floor Kitchen, would the Building Insurance cover damaged or contaminated appliances, or just fixed items like kitchen units etc. ?
If the Flat owner's contents insurance claims the damage was caused by the building's infrastructure failure due to maintenance negligence and not negligence of the Flat Owner, surely they can pass the claim and recover costs for appliances from the Buildings Insurers eventually even though they are NOT fixtures and fittings !

Thanks

On first sight, this article

On first sight, this article offers great guidance on how to secure buildings insurance for leasehold owners when they also share the freehold and have set up a freehold company. However, NFU, Aviva and, Legal and General do not necessarily offer this insurance (as stipulated in the table/article above). The stumbling block appears to be the name of the freehold company. If the company is the name of the building this then falls into the commercial property realm even if the company is dormant. If the company was set up as named persons (the share of the freehold owners) then Aviva, for example, would be able to provide cover.
I am in the process of telephoning many insurance companies to find a competitive price to replace our existing expensive building insurance (a legacy from the management company who sold both the owner of the flat above and us on the ground level the freehold, which we share). So far, I haven't been able to source this because of the reason stated above.
One point to note is that you cannot use comparison sites for this circumstance as the online forms do not allow for any variation other than straightforward quote requests. And it is hit and miss, when you follow up with these insurance companies to try and tailor your application for a situation such as this, as to the accuracy of their advice; I want to be 100% certain that I'm buying the correct insurance and satisfy all the terms and conditions in case a future claim is required. My last resort is through a broker, found locally via the BIBA link mentioned in the article, who should get back to me today.
It may be worthwhile asking your solicitor about the practicalities of setting up a freehold company as the share of freehold's owners' names; however, this may cause problems if you sell on your stake in the property. From my research, this name issue is the reason why we freeholders are paying approx £350 more in insurance annually.
I wanted to write this comment so that other people didn't waste their time doing the same research like me, and I'll write a further comment if I'm able to achieve what I'm seeking.

Hi, Could you please explain

Hi, Could you please explain to me if my flat is valued at £150,000 and there are other flats worth considerably more in the complex should we not pay the building insurance on a pro-rata basis as some properties are worth more than others ?

Kind Regards,

John Monaghan