Buildings Insurance in shared freehold where one freeholder is now renting out

sue529

3 flats in shared freehold owned by our own management company which is registered as dormant. As secretary of the management company I usually buy (yearly) buildings insurance for all of us and reclaim costs from the 2 other freeholders. Now one freeholder/leaseholder has started renting out to three tenants (which is contrary to the lease) and I fear any Buildings Insurance will be worthless if I do not tell them one of the freeholders is now acting as a landlord, and if I do tell them, the price of the policy will increase enormously. To make things worse, said freeholder is refusing to communicate with me, so I was already worried about how I could reclaim the insurance costs from her, even if it was straightforward (eg no tenants). Help!

sue529

PS Any advice on mediation? I have a telephone appointment with the Leasehold Advisory Service on Wednesday, but not confident of getting any useful help. The problem I was hoping to address was that the above mentioned freeholder won't talk to me unless I address her through 'a third party'. That situation arose as a result of an argument in which she was challenged by myself and the other freeholder and it got a bit personal.

The other freeholder has now sold and there are new owners who are happy to contribute and co-operate.

I originally wanted to know how I, as Secretary of the Management Company, could purchase new Buildings Insurance in such an unco-operative environment (tho I'm sure the new owners downstairs will not be an obstacle).

Without telling me, it appears she has now moved out and taken on two new tenants as well as the one she already had whilst she was living here. So the situation has got even more complicated. 

I will call our broker tomorrow to see if one freeholder having tenants makes a difference to the cost to the house as a whole (I'm pretty sure it will). But even then I still have a communication problem if there are extra costs. And she is also breaking the terms of the lease. So it could get nasty and costly. And obviously I don't want that.

Flugelhorn

so she has gone from having a lodger to being a landlord, does the lease specifically forbid this?

FlorayG

She's possibly breaking all sorts of other regulations as well. Are the three tenants one family? If not then the flat is a HMO ( House of Multiple Occupation) and is subject to the rules thereof

DullGreyGuy

sue529 said:

3 flats in shared freehold owned by our own management company which is registered as dormant. As secretary of the management company I usually buy (yearly) buildings insurance for all of us and reclaim costs from the 2 other freeholders. Now one freeholder/leaseholder has started renting out to three tenants (which is contrary to the lease) and I fear any Buildings Insurance will be worthless if I do not tell them one of the freeholders is now acting as a landlord, and if I do tell them, the price of the policy will increase enormously. To make things worse, said freeholder is refusing to communicate with me, so I was already worried about how I could reclaim the insurance costs from her, even if it was straightforward (eg no tenants). Help!

What class of insurance are you buying? Presumably its Block (of Flats) Insurance, a form of commercial property. Typically if a flat is rented or not is irrelevant for this class of business.

I'm surprised the freeloading company can be dormant given its buying the insurance but isnt my area of expertise

gwynlas

It is the fabric of the building that is being insured so I doubt whether company makes a point of monitoring owner occupiers or tenants.

Re owner breaching the lease by letting the management company should be writing to them remnding them of this and ideally to their mortgage lender as putting their security at risk. 

Flugelhorn

gwynlas said:

It is the fabric of the building that is being insured so I doubt whether company makes a point of monitoring owner occupiers or tenants.

Re owner breaching the lease by letting the management company should be writing to them remnding them of this and ideally to their mortgage lender as putting their security at risk. 

I have a flat in a block - the lease prohibits short lets but plenty are on long lets - the management company honestly haven't a clue who lives there, they insure the building fabric and if they need to contact someone they have the name of the owner 

eddddy

sue529 said:

Now one freeholder/leaseholder has started renting out to three tenants (which is contrary to the lease) and I fear any Buildings Insurance will be worthless if I do not tell them one of the freeholders is now acting as a landlord, and if I do tell them, the price of the policy will increase enormously. 

As @DullGreyGuy says, I would have expected Block of Flats Buildings Insurance to cover sublet flats as standard. Have you checked the insurance documents to see if they say otherwise?


From a different perspective, it sounds like the freeholder/leaseholder is breaching their lease. If that's the case, you can tell them to stop breaching the lease, and warn them that if their breach invalidates the insurance, they will be liable for any resulting losses.

For example, if a fire did £50k worth of damage to the building, and the claim was refused as a result of the freeholder/leaseholder subletting their flat, that freeholder/leaseholder would be liable for the £50k.

But the problem is, if a fire does £500k worth of damage, that freeholder/leaseholder probably doesn't have £500k, so they would go bankrupt - leaving others out of pocket.

sue529

Flugelhorn said:

so she has gone from having a lodger to being a landlord, does the lease specifically forbid this?

I have now re-read through my own lease and it restricts the letting of one room while the owner is living there, but there does not appear to be a restriction on subletting the entire flat. Presumably her lease is exactly the same. So I got it wrong with regards to her breaking the terms of the lease (although she was breaking it when she had a lodger).

sue529

FlorayG said:

She's possibly breaking all sorts of other regulations as well. Are the three tenants one family? If not then the flat is a HMO ( House of Multiple Occupation) and is subject to the rules thereof

Good point! I have just checked the council register of HMOs and no records of a license show up! She may also not have told her mortgage lender... 

sue529

Thanks for all your comments. I can confirm now that she is not breaking the terms of the lease.

However as @FlorayG points out, she is letting to three people (I am not sure if the two new people are a couple but that still makes it an HMO), and doesn't appear to have an HMO license.

In answer to @DullGreyGuy our current insurance cover is "Property Owners (Block of Flats" and there doesn't appear to be any reference to subletting. It lists Occupancy Details as the three flats which are confirmed as "the owner's main residence". However, it also details that restrictions on cover exclude "theft or malicious damage caused by lodgers, tenants or persons lawfully at the premises" (implying that subletting is allowed?). I was going to check with the broker today but fear they'll want to extract extra payment from me if I tell them!? Renewal is due on 23rd March. 

My main problem is I don't even know where she is now living or how to contact her!