Buildings Insurance / Share of Freehold

omega86

Hi everyone

I'm trying to find an answer to a question relating to allocation of risk in connection with buildings insurance between shared freeholders, and have gotten slightly stuck.

In essence, I am purchasing a flat (share of freehold and corresponding leashold interest) in a converted house with a total of three flats (each flat owner also owning one third of the freehold).

The building is currently jointly insured by the three freeholders, and I will be replacing the seller on completion. Unfortunately I have not been able to review the insurance policy, which is why I'm still slightly in the dark on this.

What I'm trying to find out is the following:

What happens if, due to an act of one of the other freeholders (e.g. person in flat no. 1 decides to burn down the building) damage is caused to the building? I presume that the answer is that the insurance company does not have to pay up, and the innocent freeholders would have to recoup their losses from the party at fault (presumably with little prospect of recovering substantial amounts). (I am awaiting a reply from the insurance company, but would like to understand the issue better in the meantime, especially in relation to what other options I may have.)

Would that be a usual arrangement where the policy is entered into between a number of shared freeholders?

Also, is there a way to get around this issue? E.g. by transferring the property to a company (in return for shares in the company), so that the company is the sole legal owner of the freehold and insures the property? As the act described in the example above would presumably not be an act of the company (but rather an act of one of its shareholders), this would not give the insurance company an opportunity to avoid payment. However, this almost seems too simple. Has anyone got any experience with such policies and could let me know how this situation is (usually) covered in policies taken out by holding/management companies?

Thanks very much for your help!

Kind regards
Phil

huckster

Pretty standard situation that hundreds of thousands (if not millions) of people will be in living in England/Wales.

Normally when you buy such a flat, whoever is responsible for dealing with the policy, will delete the previous owner and add yourself following completion of the purchase. The person responsible may be either one of the other flat owners acting as secretary or management company they have an arrangement with.

In the event of one of other flats being damaged by another flatowner and a claim is not possible (e.g Arson or other deliberate act), this can lead to very complicated situation. I have seen a few cases where matters have dragged on for years. Often if you have a mortgage, it is the mortgage company that gets involved legally, because they own the flat via the mortgage. If you don't have a mortgage, you are on your own if there is a legal battle. Because there is only one policy, I think you are considered as one entity, so you are affected by the actions of the other joint freeholder/leaseholder. If they made lots of claims, your part of the premium would be affected, by their actions. I don't remember seeing anything in a policy wording, where Insurers look after the interests of one flat owner, where another flatowner under the same policy, has done something that affects you.

When I was buying property, my solicitor gave me advice that I should never buy a flat in a converted house. They were into property investments and helping clients with property issues, so I presume this was due to experiences they had.

In this situation, I think you should ask your solicitor dealing with your conveyancing about this. If you are locked into buying the flat, you might want to look at whether the current policy should be replaced by a more suitable arrangement. Might be worth checking with specific block of flats Insurances, whether they can cover the interests of individual flat owners, so they don't lose out due to the actions of others.

Think about arranging some form of legal expenses Insurance to cover property disputes, just in case. Speak to a broker or search online for separate legal expenses policies. You can arrange such cover via Contents Insurance, but you need to check on the scope of cover, as some are fairly limited.