Simple, you say, it’s the policy holder, but in the case of block of flats insurance the answer can be somewhat more complicated than that. Typically, a freeholder takes out a communal block of flats insurance policy, which leaseholders contribute to via the annual service charge, and this covers the entire block of flats. So, as a Freeholder of a block of flats or building converted into flats, if you want to avoid disagreement and confusion from your leaseholders when their flat has incurred damage due to an incident originating from outside their flat, read on… The answer is all in the detail…or maybe it’s not!
These days it is accepted that block of flats insurance policies will carry an excess which is sometimes referred to as a deductible. This is the contribution that has to be paid towards any claim before the insurer pays the balance and may need to be paid before any remedial work can begin. Commonly, different levels of excess will apply to different types of losses. So, flats insurance excesses themselves can vary thus adding further complication, and that’s before we begin to look at the challenge of who should pay the excess when it comes to block of flats insurance and why.
The answer to this question is often unclear and there are a number of issues to be considered. The starting point is the lease; some modern leases specify how excesses are to be dealt with – which is usually done by including them under the service charge account. Older leases, on the other hand, are unlikely to specifically dictate how flats insurance excesses are to be handled as, when they were drafted, excesses were less common.
So, you may ask, why have excesses become more common place in flats insurance and the answer is simply that they are a means of reducing the premium. Initially, small excesses were imposed on flats insurance policies to eliminate small claims where the cost of administering the claim could be greater than the amount of the loss being claimed for. More recently, however, larger flats insurance excesses have become a way of reducing the premium; and the larger the excess becomes, the more contentious an issue it becomes and the more likely this will be legally challenged by means of an appeal to the First-tier Tribunal (Property Chamber).
Assuming the lease is silent on the subject, you will have to consider whether you wish to add it to the service charge account. But if you do, then you need to be aware that the First-tier Tribunal (Property Chamber) may rule against this, depending upon the way the rest of the lease is constructed. If the claim relates to common areas of the block of flats, or affects multiple flats, it could be assumed that this would be considered as a general maintenance issue and, as such, the excess simply should be managed via the service charge account. With an escape of water, on the other hand, it is usually the flat owner underneath the flat where the water originated that suffers damage and will often be the party making the claim. Whilst, morally, the flat owner below may feel that it is the fault of the flat owner above, the challenge is in establishing strict liability in law and for most claims this is not easily possible. For example, a flat owner who accidentally overfills a bath would probably not be considered negligent by a court of law unless it could be proved that this was not the first time they had done so.
The First-tier Tribunal (Property Chamber) have generally allowed for flats insurance excesses to be claimed under the service charge account but this is not always the case. In fact it has ruled both for and against excesses to be charged in this manner so leaving this in a grey area.
So, whilst it is commonly accepted that flats insurance excesses are a means by which flats insurance premiums can be reduced, the difficult debate is whether they form part of the flats insurance costs in the eyes of the lease.
Electing for or having a large flats insurance excess can also cause problems for flat owners looking to sell their flat. The conveyancing solicitor acting for a prospective purchaser is bound by the Council of Mortgage Lenders’ handbook. This requires them to refer to a mortgage lender if the flats insurance excess contribution from any one flat is greater than £1,000. Where this is the case, a mortgage lender may refuse to lend which can drive down the market value of a flat and reduce the desirability of the entire block of flats themselves.
With a growing trend towards larger flats insurance excesses this is an emerging problem. Ideally then such details should be agreed as part of the terms of the lease or at least discussed and agreed in advance with all leaseholders. Possibly another good solution is to pay a little more on the premium of your flats insurance policy and lower the excess wherever this is possible. Arguably this may be in the best interest of all, freeholder and flat owners alike.
If you would like any further help or advice regarding block of flats insurance, then please get in touch and let 1st Sure Flats’ dedicated team help. You can contact us by calling 0345 370 2842, email us at firstname.lastname@example.org or if you’d like to get a free quote then just click here.