Buildings insurance!

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Permalink Reply by Rob B on March 17, 2017 at 2:10

Hi

I'm a ladder resident property litigation lawyer and I specialise in collective enfranchisement (buying your freehold). I'm always happy to give a quick run down of the process and give a fee estimate. I can also run through the other options like right to manage and challenging the service charge at the tribunal, but spoiler alert - they almost always lead to less satisfactory outcomes.

Let me know if you want a chat about it.
Rob

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Permalink Reply by Fiona on March 17, 2017 at 16:40

Hi Rob

I'd be very interested to pick your brains please.  If you own both leasehold flats in a converted house (i.e. the only 2 flats in the property), do you have the right to buy the freehold?

Many thanks

Fiona

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Permalink Reply by Philip on March 17, 2017 at 16:56

not Rob but yes, as long I believe as you have been a leaseholder for two years.

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Permalink Reply by Rob B on March 17, 2017 at 20:48

The 2 year ownership rule does not apply to collective enfranchisement. Only lease extensions. So yes, all other things being equal a leaseholder who owns both flats in a building with only 2 flats in would have the right to enfranchise themselves. Note - the limit is 2 flats. Any leaseholder who owns 3 flats+ is deemed to own no flats for the purpose of enfranchisement (but there are easy ways rounds that e.g. Hold one flat in a company name etc)

Rob

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Permalink Reply by Fiona on March 18, 2017 at 11:57

Really helpful, thanks Rob.  I may well get back to you later on for that estimate :)

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Permalink Reply by Rob B on March 18, 2017 at 12:34

No probs. I can't imagine a situation more suitable for owning your own freehold than owning all the flats in the building!

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Permalink Reply by Rich H on June 30, 2017 at 18:26

Hi Rob B.

I'm less interested in purchasing the freehold for the building as it'd be 2 of us paying (though there are 3 flats), and I also have a long lease remaining.

However I'm keen to get to the bottom of the buildings insurance charges.

Sourcing suitable quotes and comparing them to the insurance policy my freeholder's brokers have drawn up is proving tricky. Do they even need to be comparable - the broker's one may include a load of things we don't need? I'm no expert in these matters - and when I've suggested other policies in the past the broker has shut me down pretty quickly by picking holes in the quote I've sourced.

Do you give advice on buildings insurance as well as freehold purchase?

Thanks!

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Permalink Reply by Sabby on March 18, 2017 at 6:38

Hi Rich,

We recently resolved a similar problem with managing agents charging an excessive buildings insurance premium (and other things). Between two flats in a two storey conversion we were being charged £700 - this has now been reduced to £350. We also got a backdated refund of all wrong buildings insurance charges for previous years.

The managing agent has an obligation to secure a market rate. You can obtain comparable quotes from insurance companies yourself to find out what a market rate is. The insurance type the managing agent needs is slightly different from what you need as an owner-occupier with freehold, so quotes are usually slightly higher than comparable properties where the owner-occupier owns the freehold. This type of insurance is called property owner's insurance. Get quotes from different insurance companies for property owner's insurance for your building (e.g. all 3 flats and common parts) as if you were the managing agent.

The key thing you need to know for this is the 'rebuild value' of the property. The buildings insurance premium is calculated not on the market value of the properties (e.g. the potential sale price of the property or the potential sale price of the 3 flats) but on the cost of re-building the property from scratch using new materials. The rebuild value is therefore much lower than the market value of the property. You can obtain an estimate of the rebuild value from the surveyor's report commissioned when you (or any one of the other 2 flats) bought the property.

The managing agent is also obliged to provide a copy of the insurance schedule for you to view on request. The two-page summary should contain all the key information you need. Once you have the quotes, you can see if there is a discrepancy (I imagine there will be) between what you are currently paying and what you have been quoted. If there is a difference, you can take the managing agent to a tribunal to get a reduction and a refund for every previous year you have been wrongly charged. Tribunal information here:

https://www.gov.uk/leasehold-property/leasehold-disputes

In our case, the property was being insured for the market value of £700,000 instead of the rebuild value £300,000. 

Any questions, just let me know.

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Permalink Reply by Rich H on March 21, 2017 at 12:57

This is really helpful Sabby, thanks very much.

I've just been sent the (new!) insurance policy for this year. Although that means I'm potentially too late to affect anything for this year's payment (without taking the tribunal route), there was a slight reduction - so perhaps my pestering of the managing agents has had some impact. At £1,800 for the 3 flats though it still seems excessive.

Anyway I'm armed to seek comparative quotes now.

The tribunal option seems very interesting too  - though it might be muddied somewhat by the fact there was a claim made (just before my time) which the quotes have slowly been recovering from.

I'll update with progress and shout if I get stuck!

Thanks again.

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Permalink Reply by Betty Careless on March 21, 2017 at 18:43

Our managing agents claim that they search yearly for the 'best insurance deal' and bill us us for half a day of their time.  In the five years I've owned the flat they've billed us every year but funnily enough the 'best deal' has never changed.  They also charge for every interaction - so if I contact them to ask them to send me the insurance details they will bill for that.  

They also dream up 'major works' that need doing every year (i.e putting scaffolding up to paint the upstairs windowsills every other year)  - suggest a contractor who is ludicrously expensive, wait for me to do the legwork of getting cheaper quotes in, let me do the legwork of being there to supervise the work because I have to be there to give access through the flats, and then charge us a hefty fee for them 'managing the works'.  

Both the other flats in my house are buy to let and the people who own them live overseas so I'm very loathe to go down the buying the freehold route because it would leave me in a very vulnerable position - however the managing agents seem to just have a licence to charge us whatever they feel like.  It is just a completely mad piece of legislation.

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Permalink Reply by Rich H on June 30, 2017 at 18:17

Had a free hew hours to pick this one up again, and ended up getting just as confused and frustrated as before!

I've got the rebuild value for the house.

I've been sent the 'bespoke' policy the insurance brokers (employed by the freeholder or their property management company) have drawn up. It's a document they've 'worded specifically for blocks of flats' - there's nothing specifically about my flat/our building in it.

However I'm finding it very difficult to get comparative quotes. I've tried this before, and suggested them to the freeholder's insurance broker. A couple of weeks later I'll receive a response telling me (in legal speak) why the quote I've sourced isn't suitable or comparable with the 'bespoke' one they've drawn up.

I think I might need to pay for an hour or two of legal advice to actually progress this anywhere. Can anyone help or recommend someone?

I may have a word with Rob (above) about buying the freehold with one of the other leaseholders, but there's a third leaseholder who won't want to be involved, and anyway I've still got a very long lease so there's not quite the same incentive for me.

Rich

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Permalink Reply by Sabby on July 1, 2017 at 15:31

You can get free advice by calling the Leasehold Advisory Service, or reading through the information on their website:

www.lease-advice.org

For the buildings insurance issue, the freeholder/managing agent must provide a copy of the insurance cover and premium to you within 21 days (I think that's the time period) on request. This should state the rebuild value currently insured. If the freeholder/managing agent doesn't comply within the period, it is a criminal offence punishable with a fairly hefty fine.

What should and should not be covered by the buildings insurance is not up to the freeholder/managing agent. It is determined by the terms of your lease, so you can check the wording of the lease against the policy.

Also, re the purchase of the freehold, the lease length is factored into the calculation of the value of the freehold. As a result, it is significantly cheaper to buy the freehold if you have a long lease, so this may work in your favour. There are calculators available online that can estimate the value. You can get a run down here:

Www.moneysavingexpert.com/mortgages/buy-freehold-right-to-manage

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