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Main site > Forums > Essential Money > House Buying, Renting & Selling > Period conversion - 2 flats - Best option for ins...
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    • By bowcreek 22nd Sep 16, 11:31 PM
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    Period conversion - 2 flats - Best option for insurance
    • #1
    • 22nd Sep 16, 11:31 PM
    Period conversion - 2 flats - Best option for insurance 22nd Sep 16 at 11:31 PM
    Hello fellow members. Please can I seek your opinion on below?

    Getting close to exchange of contracts for our purchase of a ground floor flat in a Victorian house converted into 2 flats (both with separate entrances). The flat above is tenanted.

    we will have a leasehold title (900 years lease) and will own the freehold jointly with other co-freeholder.


    In terms of insurance requirements, lease of both flats state they need to insure jointly.

    Seller who bought this flat 8 years back in cash tells that him and flat above has been insuring separately (haven't shown the evidence yet). I know having 2 separate policies aren't ideal for such arrangements. So what do you think my best option would be? Please do feel free to suggest one which I might not have covered below.

    1. Buy separate policy / Carry on with seller's insurance provider and transfer his policy to myself (things to check would be but not limited to amount of cover, claim history etc,) + Contingent building insurance (Approx. £300)

    2. Buy separate policy / Carry on with seller's insurance provider and transfer his policy to myself, then after completion try to convince co-freeholder to buy block insurance. Cancel mine and his if he agrees. If he doesn't - carry on my separate insurance and buy contingent (I hope my solicitor can buy that after completion too).

    3. Not sure if I can, but my solicitor says being holding freehold jointly, I can insure the whole building myself without co-freeholder's consent as such. Is it possible? What is he has a separate policy which means dual cover, at time of claim - possible issues? I'd have to ideally buy block of flats insurance to cover correctly and I assume his consent is needed?

    Does this Contingent insurance worth having? I hope its just not words written on piece of paper and when real need comes in, its worth nothing? Has anyone had unfortunate reasons to ever bring them to use please?

    I'm really confused about what should be best way to deal with this and seeking help in way forward.

    thanks.

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    • By eddddy 23rd Sep 16, 7:32 AM
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    • #2
    • 23rd Sep 16, 7:32 AM
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    • 23rd Sep 16, 7:32 AM
    As you suggest, the best solution would be for you to insure jointly as freeholders - as required by the lease.

    Once you own the lease, you can take steps to make this happen, if you want - by serving notices. However, serving notices on your joint-freeholder may not be the best foot to get started on with your new neighbour.

    Is this insurance situation an indication that the joint freeholder is generally an unreasonable person? That may be a bigger problem than anything else. Because you'll probably need to cooperate on other stuff in the future.
    Last edited by eddddy; 23-09-2016 at 10:25 AM.

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    • By bowcreek 23rd Sep 16, 12:31 PM
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    • #3
    • 23rd Sep 16, 12:31 PM
    • #3
    • 23rd Sep 16, 12:31 PM
    “
    As you suggest, the best solution would be for you to insure jointly as freeholders - as required by the lease.

    Once you own the lease, you can take steps to make this happen, if you want - by serving notices.
    Originally posted by eddddy ”

    I take that can only happen after completion? How should we best insure meanwhile i.e. before exchange till the time we get into agreement with jointly insuring. Also that might not happen at all, so that arrangement we make needs to be something which we can carry on with if we can't get it jointly insured. Don't want to take the serve notice route right from beginning.

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    • By eddddy 23rd Sep 16, 1:46 PM
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    • #4
    • 23rd Sep 16, 1:46 PM
    • #4
    • 23rd Sep 16, 1:46 PM
    TBH, if it were me, I would start by saying this to the seller:


    "I'm not going to buy your flat until you sort out the insurance issue with your joint freeholder, and get a single insurance policy for the whole building...

    (and maybe)

    ... plus you need to arrange a deed of trust with your joint freeholder that states how buildings insurance and other 'freeholder matters' will be dealt with in the future."


    Otherwise, you're buying yourself into a messy situation - and you'll have to get specialist insurance and indemnities until it's sorted out. (Personally, I would expect a discount on the price for the hassle of dealing with this.)

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    • By bowcreek 23rd Sep 16, 1:51 PM
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    • #5
    • 23rd Sep 16, 1:51 PM
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    • 23rd Sep 16, 1:51 PM
    We had the place undervalued by mortgage valuer £15,000 and seller had to agree to it. Its because of this discount, they aren't much keen to negotiate any further.


    I'd thought lease defines how those matter need to be dealt with? Both flats have same lease content. What is deed of trust for?

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    • By eddddy 23rd Sep 16, 2:06 PM
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    • #6
    • 23rd Sep 16, 2:06 PM
    • #6
    • 23rd Sep 16, 2:06 PM
    A lease is a 'contract' between leaseholder and freeholder.

    A deed of trust is a 'contract' between joint freeholders.

    It would be intended to prevent disputes between the joint freeholders (like disputes about how the property is insured).

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    • By bowcreek 23rd Sep 16, 2:22 PM
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    • #7
    • 23rd Sep 16, 2:22 PM
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    • 23rd Sep 16, 2:22 PM
    OK. But in this case we also hold freehold. I thought both leaseholders will follow covenants enforced under their lease. Not sure who the lessor technically is in such arrangement.

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    • By bowcreek 23rd Sep 16, 4:08 PM
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    • #8
    • 23rd Sep 16, 4:08 PM
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    • 23rd Sep 16, 4:08 PM
    Just because we like this place and would want to go ahead, I am getting inclined towards option 1 or 2.


    Do the indemnity insurances like Contingent building insurance appear as anomaly when selling a property? So if we end up not able to sort out block insurance and decide to buy our own flat's insurance + Contingent insurance, will this look bad to future buyer in real world?


    Have you heard of contingent insurance being put to use for claim by anyone on this forum or elsewhere?

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    • By eddddy 24th Sep 16, 11:05 AM
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    • 24th Sep 16, 11:05 AM
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    • 24th Sep 16, 11:05 AM
    You're missing the real point.

    Big alarm bells should be ringing in your head...

    Two people (i.e. the current leaseholders / joint freeholders) are failing to cooperate on a really simple task - arranging a block insurance for their building.

    They are both breaching the terms of the lease.

    Why are they failing to cooperate? Is there a feud between them? Is one or both of them a 'problem case'?

    Do you want to buy into a feud situation, or become a joint freeholder with a 'problem case'?



    As I suggested earlier, you need to find out what the problem is and see if it is rectifiable before buying the flat.

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    • By bowcreek 24th Sep 16, 11:22 AM
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      What's this?

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    I get your point. But what seems to be happening is seller never realised the need of being so aware about importance of jointly insuring probably being a cash buyer as initially they said they dont have any insurance, but later realised they have been paying annually via direct debit to M&S. They seem to now think that why should they sort it out as they are selling the flat and hence there is no point to them. To be honest I am yet to see their copy of insurance they have, if they have one. Is it okay to speak to co freeholder before exchange ? What is the best way to get his details and to contact him.

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    • By G_M 24th Sep 16, 1:36 PM
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      What's this?

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    “
    ...
    Getting close to exchange of contracts for our purchase of a ground floor flat in a Victorian house converted into 2 flats (both with separate entrances). The flat above is tenanted.
    Originally posted by bowcreek ”
    Who/where is the landlord / leaseholder / joint freeholder?

    The best solution is a conversation with that person. You'll

    a) find out if he's receptive to the idea of a single insurance policy in future and

    b) find out if he's likely to be cooperative/obstructive generally with freehold matters

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    • By bowcreek 26th Sep 16, 12:57 PM
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      What's this?

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    OK found out that seller (ground floor flat) has unlimited (premier) building insurance from M&S.


    What happens if the whole house falls down? Lets say it costs X amount to rebuild ground floor which as per the claim from premier policy, insurer would pay but would such insurance also rebuild the first floor even if there was no insurance taken by first floor flat - because that's how building looked like before i.e. 2 floors not just ground.

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    • By bowcreek 27th Sep 16, 12:08 PM
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      What's this?

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    Can someone clarify above for me please?


    Also if lease of both joint freeholders says below,




    "At all times during the said time to insure and keep insured the building in the joint names of the lessor and lessee and any other person or institution having an interest therein in the full replacement value thereof..."


    am I correct in saying it definitely means both freeholders insure as a block and not separately?


    If yes, I have 2 questions..


    1. Would insurance bought separately be actually of no use because lease asks to insure jointly? Is there a relation in two to work from insurer's standpoint?


    2. If I buy contingent (which is actually to cover in such shortfalls) insurance along with insurance for my flat, would they both be actually of no use because we are not obeying the lease?

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    • By G_M 27th Sep 16, 12:25 PM
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      What's this?

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    “
    OK found out that seller (ground floor flat) has unlimited (premier) building insurance from M&S.


    What happens if the whole house falls down? Lets say it costs X amount to rebuild ground floor which as per the claim from premier policy, insurer would pay but would such insurance also rebuild the first floor even if there was no insurance taken by first floor flat - because that's how building looked like before i.e. 2 floors not just ground.
    Originally posted by bowcreek ”
    What does the policy cover?
    * the building, or
    * the flat

    If just the flat, then the insurer will not pay to reinstate the whole building.

    “
    "At all times during the said time to insure and keep insured the building in the joint names of the lessor and lessee and any other person or institution having an interest therein in the full replacement value thereof..."
    Who does this clause apply to? The freeholder or the leaseholder? (I'd guess the freeholder - hence my earlier advice to contact the other joint freeholder)

    am I correct in saying it definitely means both freeholders insure as a block and not separately?
    See question above.
    If the Freeholder must "at all times during the said time.... etc" then he (yes, the 'freeholder' is a single legal entity despite there being 2 people) must insure the building as a block.
    If yes, I have 2 questions..


    1. Would insurance bought separately be actually of no use because lease asks to insure jointly? Is there a relation in two to work from insurer's standpoint?
    It would not be of no use, but creates problems. Both policies would in theory be valid, though there can be difficulties in practice.

    The 2 insurers might argue about who pays how much.
    One (or both) might claim there is double insurance (eg common areas) and refuse to pay for those.
    They might each claim their cover is for the flat in question but not the common areas (which could be uninsured).

    There's a real risk of huge delay in rebuilding while they squabble, and a real risk of not getting the full cost reimbursed.

    2. If I buy contingent (which is actually to cover in such shortfalls) insurance along with insurance for my flat, would they both be actually of no use because we are not obeying the lease?
    ”
    I can't answer 2 above.

    As a joint freeholder you should ensure a single policy covers the building.

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    • By davidmcn 27th Sep 16, 12:35 PM
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      What's this?

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    “
    It would not be of no use, but creates problems. Both policies would in theory be valid, though there can be difficulties in practice.

     The 2 insurers might argue about who pays how much.
    One (or both) might claim there is double insurance (eg common areas) and refuse to pay for those.
    They might each claim their cover is for the flat in question but not the common areas (which could be uninsured).

    There's a real risk of huge delay in rebuilding while they squabble, and a real risk of not getting the full cost reimbursed.
    Originally posted by G_M ”
    I doubt it's a huge problem given that the same insurers seem to manage in Scotland, where flats are freehold and it's commonplace for each flat to have its own policy. The relative interests would be determined by the titles.

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    • By bowcreek 27th Sep 16, 2:55 PM
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      What's this?

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    “
    The relative interests would be determined by the titles.
    Originally posted by davidmcn ”

    Sorry, what did you mean by that? Do you mean % of freehold for both individuals (joint landlords/freeholders)?

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    • By bowcreek 27th Sep 16, 3:16 PM
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      What's this?

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    “
    What does the policy cover?
    * the building, or
    * the flat

    If just the flat, then the insurer will not pay to reinstate the whole building.


    I can't answer 2 above.

    As a joint freeholder you should ensure a single policy covers the building.
    Originally posted by G_M ”

    Thanks.


    -That's taken from ground floor flat lease (the flat in question). Same clause is there in first floor flat's lease as well. I'd agree with you that it applies to both lessors (2 leases) = joint freeholders.


    "Lease is made between lessor and lessee, whereas Lessor is the freeholder of the dwellinghouse referred as "Building"..

    The lessor hereby demises unto the lease ALL THAT the flat on ground floor of the building...."

    - FYI, there are no communal areas and entrance to both flats in separate.


    - The insurance doc from seller doesn't say building or flat but has address of ground floor flat only (Building number with letter A). First floor has just the building number on it.


    - I've asked my solicitor to ask seller to provide us co-freeholders details to be able to discuss the possibility of having joint insurance. I feel that because seller bought the flat in cash and has "unlimited cover" insurance, they thought we are worrying for no reason and delaying the transaction. For this reason they probably thought why should they discuss this with co-freeholder in first place having such insurance policies available which we can buy. I hope they either arrange for his insurance copy to be shared with us or us speaking to other freeholder directly (best!).
    Last edited by bowcreek; 27-09-2016 at 3:24 PM.

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    • By bowcreek 13th Oct 16, 12:56 PM
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      What's this?

    bowcreek
    Its hard to get quick responses from other co-freeholder it seems.

    Can I check

    - if I can buy a block policy myself to cover whole building being joint freeholder? Would I need some sort of consent from other freeholder ? I'm thinking to seek costs to be divided later if he agrees.

    - assuming he has separate insurance for first floor flat, would it be a problem if he is dual insured as a result of me taking out block of flats policy?

    - first floor flat which he owns is tenanted. Can he go ahead and make claims without my permission if he wants to under the block policy? I'm concerned that unreasonable / small claims might make it expensive to insure in future apart from having to shared excess for claims possible? Could this be a con of insuring jointly?
    Last edited by bowcreek; 13-10-2016 at 3:13 PM.

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    • By bowcreek 24th Oct 16, 12:33 PM
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      What's this?

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    Update - Co-freeholder's policy received. Its landlord's insurance product policy from endsleigh, with adequate building's insurance of 1 Million (first floor flat is let out).


    Bought my insurance separately for now. Exchanged contracts. Would be looking into joint block policy soon after completion. Contact established with co-freeholder. Thanks.

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