Legally - What Building Insurance do we Require?

MintSoil

Hi there, first time poster here. My flat is part of a conversion in a building which just looks like an old Victorian house. There was an office business here many years ago. 

There are now two upstairs flats, and a flat on the ground floor which sits under, or encompasses both upstairs flats. The three owners of each flat (including myself) are part of a ltd management company which is responsible for the upkeep/maintenance of the building. We coordinate things that need to be done to maintain the building, and each pay in a service charge every month, to contribute to the funds in the account of the management company. We all have shares in the freehold I believe. 

Due to an ongoing dispute about prospective plans for a building upgrade, I have been looking into alternative solutions. I was told recently by one of my neighbours that the upgrade we require is part of our building insurance requirements, though this is unclear, and is anything but set in stone. 

We have commercial building insurance it turns out, which may require more stringent measures. I was surprised to find this out - why would three residential flats have commercial building insurance? No goods, services or trade is being carried out on these premises, for profit. I was told the reason we have commercial building insurance is because we simply are part of a management company....? 

I have spoken to a couple of people about this who concur this is why we have the commercial building insurance. And a couple of other people who say it is *not* necessary and cannot understand why we have this type of insurance as we are still ultimately, three, fairly small residential flats. 

Can someone please tell me what building insurance we actually require? Is there any law which states we must have commercial building insurance due to the management company? Thanks  

kingstreet

The freeholder (can be individual or company) should normally have block buildings insurance which may be considered more of a commercial proposition than residential. What do the individual leases say about insurance?

user1977

There are no legal requirements about what insurance you should have beyond whatever your leases say about it (and if you have a mortgage, whatever its terms require you to have in place).

DullGreyGuy

There is no statutory requirement for Building insurance.

There can be two sources of contractual obligations:

1. Lease
2. Mortgage

Given its share of freehold and presumably all the leasees are also shareholders of the LTD then the first one is a bit of a red herring as in principle you could collectively agree to ignore the requirement or, better, update the leases to remove the requirement.

If any of the leaseholders have mortgages though they will require that buildings insurance is held and insuring one flat rather than the whole building leads to problems when there are notable claims. Eg for a claim to damage to the roof does just the one upstairs insurer of the flat currently getting the water ingress pay or all 3? Same with subsidence if the cracks are only in the ground floor flat? The worst obviously is what happens if the groundfloor flat is uninsured and has a major fire, the upstairs insurers arent going to want to pay for the structural work required in the groundfloor flat.

To insure multiple dwellings under a single policy you need "Block of Flats Insurance" (abbreviated to Block Insurance) which is a type of commercial insurance. As per your own example the legal owner of the building and the insured is a Limited Company and so in principle a commercial entity.