If you own a leasehold flat, in what circumstances can you claim on the building’s insurance and what is covered by that insurance? The answer can normally be found in your lease.
The first step with most leasehold problems is to look at the specific terms in the lease. The lease sets out the rights, duties and obligations of each party to the lease and, whilst many leases contain similar clauses, they are rarely identical.
Insurance arrangements are therefore usually determined by what the tenant and landlord agree in the lease. There are some general points that can be made, however, as many leases contain similar clauses.
Typically, the lease requires the landlord to arrange and pay for the building’s insurance and recover the cost from the tenants through the service charge.
Only occasionally, usually only in buildings converted into two flats, will the leaseholders themselves be responsible for insuring the whole or part of the building.
The lease will usually determine that the building must be insured i.e. all parts of the building that are not demised, which will typically include the structure and common areas.
The lease will usually also dictate what risks must be insured against, such as fire, flood, natural disasters, escape of water and subsistence.
A well drafted lease should cover the risks required to be covered by most mortgage lenders as set out in the Council of Mortgage Lender’s Handbook.
Whilst it is often the building that is insured by the landlord, if a lessee suffers a leak within their own flat a claim can usually be made.
However a negligent act could vitiate an insurance claim because some insurance policies and leases dictate that a claim cannot be made if the damage is due to the tenant’s negligence.
If a lessee failed to turn off the bath taps and this caused water damage, for example, any claim would probably fail.
If a claim is made on the insurance policy successfully, there may be a question as to who pays the insurance excess. Unfortunately, most leases fail to clearly determine this.
The tenant who is responsible for the claim will normally be required to pay the excess. If the damage is purely accidental, however, such as a burst pipe, then the service charge fund may be used to pay the excess.