Insurance for Leasehold and Block-Managed Property
Who insures, and for what
In a leasehold block the landlord normally covenants to insure the building and the leaseholders contribute the premium through the service charge. Two principles drive most exam questions. First, insurable interest and indemnity: the sum insured must reflect the reinstatement cost (demolition, reconstruction, professional fees, statutory costs), not market value - a professional reinstatement cost assessment should be refreshed periodically and indexed annually. Second, subrogation: where the lease obliges the landlord to insure and the tenant contributes, the insurer generally cannot pursue the tenant for negligence causing the damage (Mark Rowlands Ltd v Berni Inns Ltd).
Candidates should understand common perils, terrorism cover (often separate and Pool Re-backed), public liability, employers' liability, directors' and officers' cover for RMC boards, and the distinction between buildings and contents. Premiums recovered through the service charge remain subject to s.19 reasonableness and can be challenged in the FTT under s.27A. A tenant may request a written summary of the insurance in the prescribed form and inspect the policy and premium receipts. Managing agents who arrange insurance may be carrying on regulated activity and must operate within the correct permissions.
Traps: assuming terrorism or flood is automatically covered; using market value as the sum insured; ignoring a lease requirement for joint names or a waiver of subrogation; failing to pass on insurer recommendations and conditions.
Worked example: reinstatement cost £2,000,000 but sum insured £1,500,000 (75%). A £300,000 claim is reduced to £225,000 by average, and the shortfall may itself fall on leaseholders through a service charge supplementary demand.