Owning a share of freehold is a common arrangement in the UK property market, especially in apartment blocks and converted houses. While it provides certain advantages over leasehold ownership, it also comes with specific responsibilities, one of which is buildings insurance. Buildings insurance is a crucial component for any property, ensuring that the structure is protected against damage or loss due to various risks such as fire, flood, or vandalism. For properties with a share of freehold, the process of obtaining and managing buildings insurance can be more complex than for traditional freehold or leasehold properties. This article explores what share of freehold means, the importance of buildings insurance, how it works, and the responsibilities involved.
Understanding Share of Freehold
To comprehend the significance of buildings insurance for share of freehold properties, it is essential first to understand what “share of freehold” means.
What is Share of Freehold?: In the UK, properties are commonly classified as freehold or leasehold. Freehold means you own the property and the land it stands on outright. Leasehold means you own the property for a specific period under a lease agreement, but not the land. Share of freehold is a unique arrangement where the leaseholders collectively own the freehold of the building. This is common in apartment buildings or houses converted into flats.
How Does It Work?: In a share of freehold setup, each flat owner typically holds a share in a company that owns the freehold or, alternatively, all the owners are listed as joint freeholders. While the individual flats are still leasehold properties, having a share of the freehold gives the owners more control over the management of the building, including maintenance and insurance.
Advantages of Share of Freehold: The key benefits of owning a share of freehold include the ability to extend leases at no extra cost, greater control over the management of the property, reduced service charges, and the potential to increase the value of the property.
Responsibilities: However, with these benefits come responsibilities. Shareholders are collectively responsible for the upkeep of the building, managing communal areas, and, crucially, arranging and maintaining appropriate buildings insurance.
Importance of Buildings Insurance
Buildings insurance is a fundamental requirement for any property, providing financial protection against damage or loss caused by a range of risks such as fire, floods, subsidence, storm damage, vandalism, and more. It covers the structure of the building, including walls, roof, floors, and any permanent fixtures and fittings like kitchens and bathrooms.
Legal Requirement and Mortgage Condition: For most properties, buildings insurance is not only advisable but is often a legal requirement or a condition of a mortgage. Lenders typically require that the building be adequately insured to protect their investment in case of damage or total loss.
Financial Protection: Buildings insurance ensures that, in the event of significant damage, there are funds available to cover the cost of repairs or rebuilding. Without this insurance, the costs could be financially devastating for property owners.
Peace of Mind: Knowing that the property is adequately insured provides peace of mind to all owners. In a share of freehold situation, it helps maintain harmony among shareholders, ensuring that everyone is protected equally against potential risks.
How Buildings Insurance Works for Share of Freehold Properties
Arranging buildings insurance for a share of freehold property involves collaboration among the shareholders. The process differs from insuring a single freehold property or a leasehold flat, where the freeholder typically arranges the insurance.
Collective Responsibility: Since all shareholders jointly own the freehold, they are collectively responsible for ensuring the building is adequately insured. This involves agreeing on the level of cover, selecting an insurer, and managing the policy. Decisions about insurance should be made collectively, often at an annual general meeting or through a property management company if one is appointed.
Types of Cover: Buildings insurance for share of freehold properties should cover the entire structure, including communal areas, roof, walls, windows, and any shared amenities like gardens, car parks, or lifts. The policy should also cover potential liabilities, such as injuries to third parties on the property.
Selecting an Insurance Policy: When choosing an insurance policy, it is crucial to consider the level of coverage, exclusions, and any additional features that might be necessary, such as accidental damage or legal expenses cover. The cost of the premium should be weighed against the level of protection offered.
Cost Sharing and Payment: The cost of buildings insurance is typically shared among the shareholders based on an agreed formula, such as the size of each flat or an equal split. It is important to establish clear agreements on how the premium is divided and paid to avoid disputes.
Management Company Involvement: In some cases, a management company may be responsible for arranging and managing the buildings insurance policy. This can simplify the process but also requires oversight to ensure the management company is acting in the best interests of all shareholders.
Regular Reviews and Updates: The insurance policy should be reviewed annually to ensure it remains adequate for the building’s needs. Changes to the property, such as renovations or extensions, should be reported to the insurer to ensure continuous and adequate coverage.
Key Considerations When Arranging Buildings Insurance
When arranging buildings insurance for share of freehold properties, several key considerations should be kept in mind to ensure adequate protection and avoid potential disputes.
Accurate Valuation of Rebuild Costs: One of the most critical aspects of arranging buildings insurance is determining the accurate rebuild cost of the property. Underestimating this cost can lead to underinsurance, leaving shareholders exposed to significant financial risk in the event of a claim. It is advisable to get a professional valuation to determine the correct sum insured.
Policy Exclusions and Limitations: It is important to carefully review the policy to understand any exclusions, limitations, or excesses. For example, some policies may exclude certain types of damage, such as flooding in high-risk areas or subsidence. Understanding these exclusions will help in choosing a policy that provides comprehensive cover.
Liability Cover: Liability cover is an essential component of buildings insurance, protecting shareholders from potential legal claims if someone is injured on the property or if there is damage to third-party property. Ensure that the policy includes adequate liability cover for peace of mind.
Handling Claims: In the event of a claim, all shareholders must cooperate to manage the process effectively. Clear communication and understanding of each party’s responsibilities are crucial to avoid delays and ensure a smooth claims process.
Dispute Resolution: Disputes over insurance premiums, coverage levels, or claims can arise. Establishing a clear process for resolving disputes, such as mediation or arbitration, can help prevent conflicts from escalating.
Legal Advice: Given the complexities involved in share of freehold arrangements, it is often beneficial to seek legal advice when arranging buildings insurance. A solicitor with experience in property law can provide valuable guidance on the responsibilities and rights of shareholders.
Conclusion
Buildings insurance is a vital component of managing a share of freehold property. It ensures that the property is protected against unforeseen risks and provides financial security for all shareholders. However, arranging and managing buildings insurance for share of freehold properties requires collaboration, clear communication, and careful planning. By understanding the importance of accurate valuations, selecting the right policy, sharing costs fairly, and handling claims efficiently, shareholders can ensure that their property is adequately protected and maintain a harmonious and cooperative ownership arrangement.
