Exorbitant Insurance charged by freeholder who may gain commission?

Hi Frank,

From the Leasehold Advisory Service >> https://www.lease-advice.org/faq/i-am-a-leaseholder-of-a-flat-i-have-received-a-demand-for-a-share-of-the-buildings-insurance-premium-do-i-have-to-pay/

You should refer to the terms of your lease in order to establish who is responsible for insuring the building, what the cover should include and how the cost can be recovered. Usually the lease provides for the landlord to arrange the insurance of the building (not the contents) and charge the cost as a service charge. The cost of the insurance may be challenged before or verified by the First-tier Tribunal (Property Chamber) as with other service charges.

Sometimes you may have to accept risks that you would not think necessary, such as the riot and flooding. I changed insurer last year on one of my properties that I've had for years; the new insurer has required flooding coverage which I've never had previously.

£800 a flat appears excessive. However the rules around which insurer a freeholder uses effectively gives them free rein to do it and they know that. Since Grenfell premiums in high rises have gone up due to overall risk. If cladding is not an issue canvass the leaseholders to see if they are interested in starting an RTM ( Right To Manage) Company. If its one block you will need 15 leaseholders. There are companys who will obtain RTM for you free if they get the management. You can then choose your own insurers.

http://www.canonburymanagement.co.uk/Web/Right-To-Manage.aspx?gclid=Cj0KCQjw2PP1BRCiARIsAEqv-pRPWnlXDp18hkR1LSyByDfQunazPi0veyykLHf1TXNraZRwFPtO3owaAmjCEALw_wcB

It's important to check the details contained in the lease to see who should place the insurance. It is not necessarily the freeholder - it might be the Residents' Management Company. Check!

All service charges have to be "reasonable" within Landlord & Tenant definitions. £800 per flat might be unreasonable - or it might be reasonable if the claims history for the building/policy is bad, or if there are particular risks at the building. Also, the extent of the risks covered will have a bearing on the premium. Get a copy of the full policy wording and schedule. Check!

If having checked the details you think the charges are unreasonable, submit an application to the First-tier Tribunal (Property Chamber) to challenge the charges. It's not that hard to do.

Finally, if you're not alone in your discontent, consider ways to "fire your freeholder". Help is here >https://berniewales.co.uk/free-downloads/

The relevant clause in our leases reads:

"the landlord shall determine a reputable company or office with which the insurance is to be placed and the sum insured", earlier clauses provide the rights of the landlord to determine the scope of cover.

Having some interest in finance regulation I noted that the landlord claimed to be reglauted by the, then, FSA, I eventually ascertained that it was an "appointed representative" which can mean either that they actively worked to sell insurance as an agent but it can also mean that they act as an "introducer" but otherwise are passive. There were numerous points of regulatory breach, inadequate contact information, no place of service, a "customer complaint" telephone number that was never answered. I eventually spoke with the "broker" at the insurance principal who describede H... not as either form of Appointed Rep but as "a very good client" which suggested that the AR status was a sham purely to gain commission, I rasied the issue at the AGM with the managing agent appointed by our RTM.

The reaction was one of it being no surprise whatsoever, I had the impression that in other developments they did much the same; questions were consequentially, apparently, raised with the LL but no response was ever received; I would note that the opening clause, nor any other, actually gives the right of PLACEMENT of the insurance to the landlord but only the determination.

Can you encourage the attaining of better quotes, I very much doubt it, even strongarming will be an ask.

I had been to the LVT around 12 years ago and one of my arguments was that I had much lower quotes for very similar insurance however, I found out that the Freeholder/Management company are allowed to get "Kick Backs" or as you say commission which I found quite shocking especially if they are using the same insurance company to cover several blocks of flats.

The premium still has to be reasonable as compared to insurances taken up by other independent management companies.

I had been to the LVT around 12 years ago and one of my arguments was that I had much lower quotes for very similar insurance however, I found out that the Freeholder/Management company are allowed to get "Kick Backs" which I found quite shocking especially, if they are using the same insurance company to cover several blocks of flats.

The premium must still be reasonable. Difficult to prove what is reasonable and depends on who you get at the tribunal.

Best to just get RTM if you can.

If the insurer know how much is being charged each flat and he allows a commision to be paid to the landlord that is one thing. If the landlord is charging much more and the insurers are unaware then the insurers are in a position to decline claims because of non disclosure of material fact.

Reply to the comment left by Clint at 14/05/2020 - 14:07Be very careful about setting up an RTM. There are many downsides a very important one being that the RTM company cannot threaten forfeiture of the lease if a leaseholder is not paying their service charges. This can only be done by the freeholder who, once they have lost the management of the site (and insurance) will naturally do very little to help the RTM company.

Very rare a forfeiture happens. I am a director of 6 RTMs across 120 units and have had to do it once where a leaseholder died and had no next of kin.