Freeholder building insurance is not simply the freeholder's own property cover. Where flats are let on long leases, the freehold interest usually carries an obligation in each lease to insure the building on stated terms and to recover the cost from leaseholders. That makes it one of the few policies bought under a contractual duty to somebody else, and the lease rather than the market sets the specification.
What the lease obliges the freeholder to do
Most leases require insurance against a listed set of perils, for the full reinstatement value, with the leaseholders' or mortgagees' interests noted, and with the premium recoverable through the service charge. Some leases name the perils explicitly and some incorporate a standard. Insuring more narrowly than the lease requires is a breach, and insuring more widely is usually recoverable only if the extra cover is reasonable.
Recovering the premium, and the scrutiny that attaches to it
The premium goes onto the service charge and is subject to the reasonableness tests that apply to service charges generally. Leaseholders may ask for a summary of the cover, inspect the policy and the receipts, and challenge a charge they think unreasonable. Commission arrangements between agents, brokers and insurers on block business have been the subject of regulatory attention, and disclosure is now expected.
Where the freeholder's own exposure sits
Property owners liability for the structure and common parts is the freeholder's, and it is the section with the largest potential claim. So is liability for anything the freeholder is responsible for maintaining: the roof, the lifts, the paths, the lighting in the stairwell. A freeholder with no repairing obligation still owes duties as the occupier of the common parts, which is why the liability section is never optional.
Share of freehold, where everyone wears both hats
Where the leaseholders jointly own the freehold through a company, the same duties apply and the same leaseholders pay. The advantage is that the people choosing the policy are the people paying for it. The risk is that nobody takes responsibility for the sum insured, the valuation or the renewal, and the policy drifts. Naming one director to own it solves most of that.
Questions people ask about freeholder building insurance
Does the freeholder have to insure the building?
Almost always, because the lease requires it. The lease also sets the perils, the basis of the sum insured and how the premium is recovered.
Can leaseholders challenge the premium?
Yes, as part of the service charge, on the grounds that it is unreasonable. They can also ask for a summary of cover and inspect the policy and supporting documents.
Who insures the inside of the flat?
The leaseholder insures contents and anything the lease leaves to them. Where the line falls between structure and demise is a question for the lease, and it varies.
What if the freeholder does not insure?
Leaseholders may have remedies under the lease and through the tribunal, and in some cases can insure and recover the cost. Taking advice early is better than paying twice.