Freeholders insurance covers a building whose occupiers hold long leases rather than the freehold. The freeholder's position is unusual: they own a building somebody else lives in, they are obliged by the leases to insure it, and the people who pay for that insurance are the leaseholders. Almost every practical question about this cover comes back to what the leases say.
The obligation is contractual, not statutory
No statute requires a freeholder to insure. The leases do, and they usually specify the perils, the basis of the sum insured and the mechanism for recovering the premium. A freeholder who insures more narrowly than the leases require is in breach of contract with every leaseholder, which is a more immediate problem than any regulatory one.
What the policy has to include
The structure and common parts on a full reinstatement basis. Property owners liability for the common parts, which is where injuries actually happen. Loss of rent or alternative accommodation where the leases require it. Employers liability if anybody is employed at the building. Terrorism on many buildings, because lenders increasingly expect it. Engineering inspection where there is a lift.
Recovering the cost, and the scrutiny that comes with it
The premium is recovered through the service charge and is therefore subject to the reasonableness tests that apply to service charges. Leaseholders may request a summary of the cover, inspect the policy and challenge the charge. Commission on block business has been under regulatory scrutiny, and disclosing it is now the expected practice rather than a courtesy.
Where freeholders most often get it wrong
Letting the sum insured drift, because there is no natural trigger to revalue. Insuring on narrower terms than the leases specify in order to reduce a charge leaseholders were complaining about. And failing to note leaseholders' or mortgagees' interests where the lease requires it, which surfaces at the worst moment during a sale.
Questions people ask about freeholders insurance
Does a freeholder have to insure the building?
Under the leases, almost always. There is no statutory duty, but the leases create a contractual one and set the terms.
Who pays for freeholders insurance?
The leaseholders, through the service charge, subject to the reasonableness tests that apply to service charges generally.
Can leaseholders challenge the premium?
Yes, on the ground that it is unreasonable, and they may first request a summary of cover and inspect the policy and supporting documents.
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. Advice early is cheaper than paying twice.