Buildings Insurance and the Service Charge

Who arranges freeholder buildings insurance for a block?

In most leasehold buildings the freeholder (or a Right to Manage or residents' management company) arranges one freeholder buildings insurance policy for the whole structure, then recovers the premium from leaseholders through the service charge.

The lease normally says who must insure, what risks must be covered and how the cost is shared. Where the freeholder is the insuring party, the policy covers the shared structure — roof, walls, foundations and common parts — rather than the contents of individual flats.

Because leaseholders ultimately pay, the way the policy is chosen matters as much as the cover itself. That is why the service charge and disclosure rules below apply.

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Can buildings insurance be recovered through the service charge?

Yes, where the lease allows it — and almost all modern long leases do. The insuring party pays the premium and recovers it from leaseholders as a service charge item in the proportions the leases set out.

Some leases treat insurance as part of the general service charge; others recover it as a separate 'insurance rent'. Either way the recovery mechanism must exist in the lease. A lease that is silent leaves the cost with the freeholder.

Recoverable amounts are limited to what was reasonably incurred. That covers both the amount and the way the decision was made, so keeping a record of the market exercise carried out each year is worthwhile.

Read next: Freeholder insurance explained

What must be disclosed to leaseholders about the insurance?

Under the FCA's multi-occupancy leasehold rules, leaseholders must receive clear information about the policy and about any commission or remuneration received by the broker, managing agent or freeholder in connection with it.

The rules came into force for insurers at the end of 2023 and for brokers, freeholders and managing agents in 2024. They recognise leaseholders as customers of the buildings policy even though they are not the policyholder.

In practice that means a summary of cover shared with leaseholders, disclosure of remuneration, and a requirement that the policy can be justified as delivering fair value — not simply the one that pays the largest commission.

Things to consider

• Leaseholders also have a statutory right to request a summary of the insurance cover and to inspect the policy.
• Managing agents should keep documentation showing how the policy was selected.
• Placing cover with a connected party without disclosure is the practice the rules were designed to stop.

Read next: Blocks of flats insurance guide

What can leaseholders do if the insurance charge seems too high?

Ask for the policy summary and the commission disclosure first, then, if the charge still appears unreasonable, apply to the First-tier Tribunal (Property Chamber) for a determination on whether the service charge is payable.

Blocks are a specialist risk and premiums vary widely between insurers, so a high figure is not automatically unreasonable. What matters is whether the insuring party can show a proper process and a policy suited to the building.

Many leases also allow leaseholders to propose an alternative insurer for consideration, which is often the quicker route to a better outcome than a formal challenge.

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