Freeholder vs Leaseholder Insurance

Who insures the building — the freeholder or the leaseholder?

The freeholder, or whoever the lease names — often an RTM or RMC company. Individual leaseholders do not insure the structure of a block; they insure their own contents and anything the lease leaves to them.

This split exists because the structure is indivisible. A single fire, storm or leak crosses flat boundaries, and one policy over the whole building means one insurer, one loss adjuster and one reinstatement programme.

The leaseholder's own policy then deals with everything personal to them: furniture, belongings, and typically carpets, curtains and any improvements they have made.

Read next: Who insures a block of flats

What exactly does the block policy cover inside a flat?

It depends on how the lease defines the demise. Many leases include fitted kitchens, bathrooms, internal walls and plaster within the insured building; others stop at the structural shell and leave interiors to the leaseholder.

The phrase to look for in the lease is the definition of the demised premises — whether it includes the internal surfaces of walls, ceilings and floors, and whether fixtures fitted by the original developer are part of the building.

In a claim, the loss adjuster works to this definition. Where a leaseholder has replaced a kitchen with a substantially better one, the difference is usually theirs to insure.

Things to consider

• Tell your own insurer about improvements so the sums insured reflect them.
• Check whether the block policy or your own policy covers accidental damage to fixed glass and sanitaryware.
• Keep a copy of the block policy summary — you are entitled to request one.

Read next: Share of freehold buildings insurance

Do leaseholders pay for the freeholder's buildings insurance?

Yes, in almost all cases. The freeholder pays the insurer and recovers the premium from leaseholders through the service charge, in the proportions the leases set out.

Leaseholders are not simply bill payers, though. Under the FCA's multi-occupancy rules they must be treated as customers of the buildings policy — which means disclosure of commission received by the freeholder, managing agent or broker, and a policy that can be shown to offer fair value.

Where a leaseholder believes the charge is unreasonable, the route is a service charge challenge at the First-tier Tribunal rather than withholding payment or arranging separate cover.

Read next: Buildings insurance and the service charge

What insurance should a leaseholder who lets their flat have?

Landlord contents cover for anything they provide, landlord liability cover, and usually loss of rent — on top of, not instead of, the block buildings policy arranged by the freeholder or management company.

A leaseholder letting out a flat is a landlord and should tell the block insurer that the flat is let, since occupancy is a material fact. Their own policy then needs to reflect letting rather than owner occupation.

Read next: What landlord insurance covers