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What insurance do I need for a block of flats?

Two Modern Apartment Houses P622CJT

The question may prove more pertinent and the answer a little more involved than you first imagined. Specialist block of flats insurance occupies a particular niche in the broader market of different types of property insurance.

Let’s take a closer look to find out why.

Types of tenure

The insurance you need for a block of flats is likely to depend on your tenure. You might own the freehold to the entire block and, with it, all the flats in it. Or you might own the leasehold of the block, pay a ground rent and service charge to the freeholder, but collect rents from the sub-leaseholders or tenants of the individual flats.

If you own the freehold

If you own the freehold, you not only own the flats and the block in which they are incorporated but also the land on which the whole building stands – and the gardens or other land which surrounds the block.

As the freeholder, you are totally in control of the block of flats, what happens to it and how it is used. That also means you are responsible for maintaining the structure and fabric of the block, the common areas within it (such as the stairs, lobbies, and hallways), together with managing the outside areas and gardens and keeping them in order.

Block of flats insurance

If you own the freehold, you are also responsible for protecting your – not inconsiderable – investment by arranging suitable building insurance (against such potentially crippling incidents as fire, explosions, flooding, storm damage, impacts, theft, and vandalism.

But when you own the entire block of flats, you are also the landlord of those tenants or leaseholders occupying the individual flats. That role of landlord brings with it additional risks and perils for which you may want the protection of suitable insurance

  • Contents insurance

You may own items in the common areas of the building or its surroundings. These items might not amount to much more than curtains and carpets, for instance, but contents insurance still provides the wherewithal for their repair or replacement in the event of loss or damage.

Landlord liability indemnity insurance

  • as the landlord, you also owe a duty of care towards individual tenants or leaseholders of the flats in the block;
  • if anyone - a visitor, a neighbour, or even a member of the public - is injured or has their property damaged through some connection with the block of flats, you may be held liable and ordered to pay compensation;
  • the amount of compensation – especially in the case of physical injuries, or even death – may be considerable, so landlord liability indemnity insurance typically provides a minimum of £1 million of cover, and in policies arranged by us here at UKinsuranceNET, £5 million of cover as standard;

Compensation for loss of rental income

  • your purchase of the freehold of the block of flats represents an investment. You rely on the income generated from rents received from your tenants or leaseholders;
  • in the event of a major insured incident, one or more of the flats may become temporarily uninhabitable pending repairs and reinstatement – and you lose the rental income on which you would otherwise depend;
  • by way of compensation, therefore, you may look to your landlord insurance policy to provide an element of compensation for such loss of rental income.

If you own the leasehold

If you own the leasehold to the block of flats, you invariably pay an annual ground rent and service charge to the freeholding landlord.

That annual payment typically covers the cost to the freeholder of maintaining the building, its common areas and gardens, together with the necessary building insurance. Although you continue to pay a share of the building insurance, therefore, you do so through the freeholder landlord.

If you own the leasehold to the block, however, you are also the landlord of tenancies and sub-leases granted to the occupants of individual flats. For that reason, you are likely still to need the elements of landlord insurance described above – namely, contents insurance, landlord liability indemnity insurance, and compensation for loss of rental income.

Right to Manage insurance

Insurance for a block of flats is further complicated by the possibility that, as a leaseholder, you may have exercised your Right to Manage.

In that event, the responsibilities for managing the block – maintaining the building and arranging suitable insurance for its structure and fabric – is taken over from the freeholder landlord and assumed by a separate Right to Manage company.

 

This may also present the opportunity – described on our pages about block of flats insurance – to extend insurance cover to the fixtures and fittings in the individual flats for which you continue to act as a