RMC Buildings Insurance

What is an RMC and why does it hold the insurance?

A resident management company is a company, usually owned by the flat owners, named in the leases as responsible for managing and insuring the building. Because the lease names the RMC, the RMC is the party that must arrange and maintain the buildings policy.

RMCs come about in two common ways. On newer developments the developer sets one up and transfers management to it as flats are sold. On older buildings, leaseholders acquire the freehold collectively and hold it through a company.

Either way the company is a legal person with directors, filing obligations at Companies House and duties to its members. The insurance arrangements need to hold together across changes of director, which is where most problems arise.

Read next: Share of freehold buildings insurance · Who insures a block of flats

What should an RMC buildings policy cover?

The full reinstatement cost of the building including professional fees, debris removal and the additional cost of meeting current building regulations, plus communal areas and plant, property owners' liability, loss of rent and alternative accommodation.

Start from the lease, not from the quotation. Many leases list specific perils that must be insured against, require reinstatement 'as new', and require the insurer to be of repute. A policy narrower than the lease leaves the RMC in breach even if the premium looks attractive.

The sum insured should come from a reinstatement cost assessment rather than from market value, which is usually a very different figure. Index linking between formal assessments keeps the figure roughly current but does not replace revaluation.

Things to consider

• Check the escape of water excess — in flats this is frequently the largest excess on the policy.
• Confirm whether flat interiors and fitted kitchens fall inside the block policy or the leaseholder's own cover.
• Ask how alternative accommodation is limited: a percentage of the sum insured, or a fixed cash amount.

Read next: Block of flats buildings insurance · Getting the rebuild cost right

Do RMC directors need directors' and officers' insurance?

It is not a legal requirement, but resident directors are personally exposed to claims arising from management decisions, and directors' and officers' cover is the protection designed for that exposure.

RMC directors approve budgets, set service charges, appoint contractors, commission major works and handle disputes with leaseholders. Any of those can generate a claim alleging breach of duty, and a company with limited assets offers limited protection to the individuals behind it.

Policies for residential management companies usually combine directors' and officers' liability with company legal liability, and sometimes employment practices cover where the company engages a caretaker or cleaner.

Read next: RTM company insurance

How does an RMC recover the insurance premium from leaseholders?

Through the service charge, in the proportions the leases set out. The premium is an ordinary service charge item, must be reasonably incurred, and leaseholders can request a summary of the cover.

Reasonableness is tested on the cost and the process, not just the number. An RMC that markets the risk properly, records why it chose the policy it did, and discloses commission is in a far stronger position if the charge is challenged.

Since the FCA's multi-occupancy rules, leaseholders must be treated as customers of the buildings policy — which means clear disclosure of remuneration and a policy that can be shown to deliver fair value.

Read next: Buildings insurance and the service charge