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Building Insurance - tax scam?
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# 1
hambone
Old 15-01-2009, 5:31 PM
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Default Building Insurance - tax scam?

My incredibly dodgy freeholder has insured our property (I am the sole leaseholder) for buildings insurance with a rebuild value of over 1,000,000. Yes 1 million to rebuild a 3 story Victorian house in north London.
The terms of my lease dictate that he organises the insurance, at his discretion, and I have to pay 50%.
This years insurance is a total of 2843.00, of which I have to pay half.

Whats he up to? Is it a scam? Seems we are both needlessly overpaying and the property is way overinsured.

Any ideas anyone? His broker wont even acknowledge me as he only acts on behalf of the freeholder. When I asked the freeholder he told me to go to hell!
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# 2
Belnahua
Old 15-01-2009, 5:35 PM
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Why not get your own quote and see what it comes out as, and then compare the difference?
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# 3
zone
Old 15-01-2009, 5:37 PM
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Is it a listed building or some other special case?
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# 4
Premier
Old 15-01-2009, 6:07 PM
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Quote:
Originally Posted by hambone View Post
...When I asked the freeholder he told me to go to hell!
I'm sure he'll be requesting your rapid return when he realises you haven't paid your half
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# 5
jenny74
Old 15-01-2009, 7:00 PM
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As a three story property, it may be what is known as 'non-standard' also if it is listed, it may be non standard. If it is in a flood/subsidence vunerable area the Insurance company will load the premium by 300%, so it could be a correct premium. However, the premium will depend on many factors, so it may not be very easy to get a quote.

I should think that if you are expected to pay half of this premium, then it would not be unreasonable to ask to see it. You should also ask to be noted as an 'Interested party' on the policy.

Hope this helps. I used to work in the Insurance industry, so can help with insurance queries to a point.

Jen
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# 6
hambone
Old 16-01-2009, 10:01 AM
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Thanks for your replies.

The property is not listed or in a flood/subsidence vulnerable area but it could be seen as 'non standard' as the ground floor is a vacant office.

So I can understand that the risk is deemed as higher but surely the 'rebuild' value should remain the same . Under a previous freeholder in 1999 the rebuild value was 180,000 and I have been told by a broker that by today's valuation it should be no more than 300,000 ?
But this present freeholder has increased the rebuild now to over 1m. He is a property developer with many properties and has owned the freehold for 8 years. However only my address is on the schedule (he sends me a copy) so I dont think its a block policy but every year the rebuild value and the premium goes up.

I asked to be put on the policy as an interested party years ago but he did it.

I just dont get it and feel totally powerless to do anything!
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# 7
hambone
Old 16-01-2009, 10:02 AM
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sorry I meant he did NOT put me on the policy as an interested party.....
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# 8
beaujolais-nouveau
Old 16-01-2009, 11:33 AM
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Quote:
Originally Posted by hambone View Post
Under a previous freeholder in 1999 the rebuild value was 180,000 and I have been told by a broker that by today's valuation it should be no more than 300,000 ?
But this present freeholder has increased the rebuild now to over 1m. He is a property developer with many properties and has owned the freehold for 8 years.
This is one way in which [expletive deleted] freeholders make money out of property. My freeholder, SGIK, is actually in print (in the Independent, about 12 years ago) saying that if he didn't make money out of the buildings insurance he would not have bothered to invest in property.

You could go to the LVT about this; but if you do you need to be aware of - and have lots of counter-arguments to - Berrycroft Management Co Ltd and others vs Sinclair Gardens Investments ( Kensington) Ltd. Otherwise, your freeholder will just play that precedent like a trump card.

Quote:
Originally Posted by hambone View Post
However only my address is on the schedule (he sends me a copy) so I dont think its a block policy but every year the rebuild value and the premium goes up.
It will be a commercial block policy, if your freeholder is a big property owner; having only your address on the schedule is normal.

Quote:
Originally Posted by hambone View Post
I asked to be put on the policy as an interested party years ago
I think that you are entitled to this so, if he doesn't cooperate, just send him an annual notice in writing so that you at least have a record of your interest. Eg "I, as the lessee of ......., Land Registry number ...., formally request that my interest be recorded on the buildings insurance schedule."

Someone may come up with better wording; that is just off the top of my head. I would copy to the Land Registry, too, every year.

See also this thread, especially post number 7 et seq

http://www.landlordzone.co.uk/forums...ad.php?t=13154

Look also at past LVT decisions on the LEASE web site, where this precedent has been cited.
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# 9
hambone
Old 16-01-2009, 12:07 PM
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ahh many thanks beaujolais-nouveau........now the situation is getting a bit clearer -

So freeholder has a large portfolio of (good and bad) properties which he block insures - in order to get this deal the insurer greatly inflates the rate.

Each property is billed individually by the insurer but monies have to be paid to the freeholder so he recoups his own costs of the block policy and prob makes a profit too.

If so, is the rebuild valuation of 1m the actual rebuild cost of all his properties together? or just a figure made up for my property between freeholder and broker in order to increase my bill ie they both win and I lose.....

lord, why does property developing attract the most unscrupulous characters????
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# 10
beaujolais-nouveau
Old 16-01-2009, 1:05 PM
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Quote:
Originally Posted by hambone View Post
If so, is the rebuild valuation of 1m the actual rebuild cost of all his properties together? or just a figure made up for my property between freeholder and broker in order to increase my bill ie they both win and I lose.....
Well, without seeing your insurance schedule, I would say that the 1m is the rebuild cost of just your property. You may find that your freeholder is his own insurance broker - that is to say, that the two companies have directors-in-common: that is the case, with my flat. You could look them up on the Companies House web site.

Quote:
Originally Posted by hambone View Post
lord, why does property developing attract the most unscrupulous characters????
Before the leasehold enfranchisement and commonhold legislation was brought in, it was a way of making a lot of money from service charges; and in some instances it still is.
YouGov: 50 and 50 and 5 Amazon voucher received;
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# 11
hambone
Old 16-01-2009, 1:11 PM
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oh god!! I know that my freeholder's brother in law is an insurance broker!!!!

I bet thats the missing link.........

Its all fascinating and all so so wrong.
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# 12
jenny74
Old 16-01-2009, 3:39 PM
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Quote:
Originally Posted by hambone View Post
Thanks for your replies.

The property is not listed or in a flood/subsidence vulnerable area but it could be seen as 'non standard' as the ground floor is a vacant office.

So I can understand that the risk is deemed as higher but surely the 'rebuild' value should remain the same . Under a previous freeholder in 1999 the rebuild value was 180,000 and I have been told by a broker that by today's valuation it should be no more than 300,000 ?
But this present freeholder has increased the rebuild now to over 1m. He is a property developer with many properties and has owned the freehold for 8 years. However only my address is on the schedule (he sends me a copy) so I dont think its a block policy but every year the rebuild value and the premium goes up.

I asked to be put on the policy as an interested party years ago but he did it.

I just dont get it and feel totally powerless to do anything!

If the property is standard and not loaded for flod/subsidence risk then a lot of insurance companies don't actually need a sum insured for buildings, and list it as 'unlimited'. Usually a premium on a standard property is calculated in things like postcode, no of stories, no of bedrooms, what the building is used for etc.

I would insist on being named as an interested party. If you have a liability to the property and are paying towards its insurance, then you have a right to your name on the policy.

I don't have a lot of in depth knowledge of block policies, so sorry I don't think I can help any further.

Jen
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Last edited by jenny74; 16-01-2009 at 3:42 PM.
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# 13
N79
Old 16-01-2009, 3:52 PM
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What is going on here is not a tax scam - it is probably an insurance commission scam.

Basically, your freeholder is taking out an insurance policy as a broker (or is in cahoots with a broker) which pays a commission. Since the commission is related to the value of the policy they purchase a super expensive, over the top policy which you then have to pay for.

The above is not exactly illegal but the broker is breaking FSA regulations. The problem will be proving it.

Edit: I did not notice that Beaujolais-nouveau gave a much better summary above, with some good pointers on action.
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# 14
beaujolais-nouveau
Old 16-01-2009, 4:22 PM
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Quote:
Originally Posted by N79 View Post
Basically, your freeholder is taking out an insurance policy as a broker (or is in cahoots with a broker) which pays a commission. Since the commission is related to the value of the policy they purchase a super expensive, over the top policy which you then have to pay for.

The above is not exactly illegal but the broker is breaking FSA regulations. The problem will be proving it.

Edit: I did not notice that Beaujolais-nouveau gave a much better summary above, with some good pointers on action.
But what you say is interesting. Acting for himself as his own client, my freeholder moves the buildings insurance to a different insurer every two years or so, which I assume he does in order to gain not only commission but new business commission (as a broker).

Some brave and well-off person will one day go to the LVT and break the dead-hand hold of the SGIK v Berrycroft precedent. Perhaps by getting expert reports about how insurance cover taken out by brokers for themselves as their own clients always resulted in unnecessarily high premiums and poor value for money.

In the meantime, under the Commonhold Reform Act 2002 the lessees can insure the building themselves, I think. However, the first time my neighbour and I tried to set this in motion the broker who agreed to process our application lost all the papers; to this day, I cannot shake off the feeling that he did it on purpose - he put the wrong postcode (for Maidstone instead of for Manchester) on the envelope - because of something he said to me about his main income being from arranging buildings insurance for corporate/big landowners.
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Last edited by beaujolais-nouveau; 16-01-2009 at 4:24 PM.
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# 15
hambone
Old 19-01-2009, 10:40 AM
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So is this 'new business commission' common between brokers and clients? Is it in the form of a hefty discount or an actual bung of cash? Any ideas how much it could amount to?

It seems clear now that my freeholder is using his brother in law who is an insurance broker to get these deals on a block policy and earn himself a nice commission.

If this is a legal and accepted practise....and at least I know my house is insured......it seems I can either just accept having to pay over 1000 a year as a sort of annual 'tax' or spend months and wads in disputing it, hiring solicitors, getting stressed and incurring the wrath of the freeholder.....
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# 16
beaujolais-nouveau
Old 19-01-2009, 12:37 PM
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Quote:
Originally Posted by hambone View Post
So is this 'new business commission' common between brokers and clients? Is it in the form of a hefty discount or an actual bung of cash? Any ideas how much it could amount to?
Not being in the insurance business, I don't know much more about this - I would look on the web to find out more. I am fairly sure, though, that it would be a bung because it would have to go through the accounts under a separate account heading of income (commission).

Quote:
Originally Posted by hambone View Post
It seems clear now that my freeholder is using his brother in law who is an insurance broker to get these deals on a block policy and earn himself a nice commission.

If this is a legal and accepted practise....and at least I know my house is insured......it seems I can either just accept having to pay over 1000 a year as a sort of annual 'tax' or spend months and wads in disputing it, hiring solicitors, getting stressed and incurring the wrath of the freeholder.....
I gather that it is legal. In your place, I would avail myself of the Commonhold Reform Act 2002 provision that allows leaseholders (acting together, obviously, as one cannot insure part of a building) to insure the building themselves.
YouGov: 50 and 50 and 5 Amazon voucher received;
PPI successfully reclaimed: 7,575.32 (Lloyds TSB plc); 3,803.52 (Egg card); 3,109.88 (Egg loans)
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# 17
hambone
Old 19-01-2009, 12:44 PM
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thanks once again..... but I'm afraid theres only one of me (I am sole leaseholder) so I cant club together with anyone to force the freeholder to sell the freehold nor can I insure the property myself........
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