Insurance and your Lease

Belinda Thorpe, Managing Director of Residentsline, advises who is responsible for placing the property insurance and what to do if you aren’t happy with the choice.

The main purpose of a residential lease is to outline the responsibilities of both the landlord and leaseholder during the lease term – this includes insurance.

There are many variations of a standard lease but who is responsible for placing the property insurance?

According to government housing services, the landlord is normally the party liable for securing insurance for the property, not the Residents’ Management Company (unless stated otherwise in the lease). The landlord will usually have to place insurance for the building itself but will not be held responsible for the contents – this will remain the leaseholder’s responsibility.

The insurance policy chosen by the landlord will normally be charged back to the leaseholder as part of their annual service charge or by way of a separate collection. The leaseholder will also have the right to ask for a full summary of the insurance policy from the landlord and to ‘challenge the cost through a tribunal’ should they deem it to be unreasonable in any way.

What if the leaseholder isn’t happy with the landlord’s choice of insurer?

Residents’ Management Companies and leaseholders can challenge a cost they believe to be too high in the First-Tier Tribunal.

There will normally be something in the lease which states that costs incurred by an insurance policy should be “reasonable”.

As stated by the Leasehold Advisory Service, the Landlord and Tenant Act 1985 requires two things:

An ‘interim service charge must be “reasonable in amount”.
A charge relating to expenditure already undertaken requires the relevant insurance costs to have been “reasonably incurred”.

So, what is reasonable?

When questioning what can be considered “reasonable” in terms of securing insurance, the following must be taken into account:

Whether the landlord’s actions were suitable and in accordance with the requirements of the lease.
Has the landlord scoured the market for alternative insurance premiums and/or policies?
Is the premium unacceptably out of line with the market?

It is also important to recognise that the landlord’s chosen insurance policy must:

be with an ‘authorised insurer’ who works in line with the requirements of the Financial Services and Markets Act;
cover the leaseholder and landlord interests;
provide cover to a sum not less than the amount required under the lease;
cover all the risks stated by the lease;
cover the risks included in the policy;
include the amount and period of the cover, and
take into account any further information as may be prescribed.

Whilst choosing an insurer can often be a difficult and time-consuming task for both Residents’ Management Company and landlord, sourcing a reliable broker will help. Here at Residentsline, we will always do our best to find you a policy that can satisfy the legal requirements of your lease as well as providing cover with a trusted insurer for the most competitive price.