RTM responsibility for insurance of commercial units

[glazer]

We acquired Right To Manage our building from the freeholder about one year ago. Our building has a few commercial units on the ground floor but the vast majority of the building is residential. There are no parts of the building that are communal to residential and commercial (i.e. the commercial units are completely separate although still part of the block).

Our understanding of the Commonhold and Leasehold Reform Act 2002 (specifically clause 96) is that our Right To Manage responsibilities relate ONLY to the residential part of our building, because the commercial units are not qualifying tenants.

Indeed, the commercial unit leaseholders have never been part of the RTM process in any way whatsoever, and until now the freeholder has never mentioned the commercial units.

One of the first things we did when we acquired RTM was to insure the block. Our insurance policy covers all of the residential units and the communal areas, but excludes the commercial units.

But now we have received a letter from the freeholder telling us that our insurance policy needs to cover the commercial units as well as the residential units. To us this seems completely wrong as we have no contact with the commercial units whatsoever and collect no service charges from them.

We would be very grateful for any comment on this, and whether we are understanding clause 96 of the 2002 act correctly.

[jeffrey]

Section 96 is below. See the words that I've underlined. Insurance:
a. is not "concerning only" the commercial bit; but
b. is concerning the entire block. Hence s.96 does apply to the entirety; and the commercial lessees have to contribute.

96. Management functions under leases

(1) This section and section 97 apply in relation to management functions relating to the whole or any part of the premises.

(2) Management functions which a person who is landlord under a lease of the whole or any part of the premises has under the lease are instead functions of the RTM company.

(3) And where a person is party to a lease of the whole or any part of the premises otherwise than as landlord or tenant, management functions of his under the lease are also instead functions of the RTM company.

(4) Accordingly, any provisions of the lease making provision about the relationship of:
(a) a person who is landlord under the lease, and
(b) a person who is party to the lease otherwise than as landlord or tenant,
in relation to such functions do not have effect.

(5) “Management functions” are functions with respect to services, repairs, maintenance, improvements, insurance and management.

(6) But this section does not apply in relation to:
(a) functions with respect to a matter concerning only a part of the premises consisting of a flat or other unit not held under a lease by a qualifying tenant, or
(b) functions relating to re-entry or forfeiture.

(7) An order amending subsection (5) or (6) may be made by the appropriate national authority.

[glazer]

Hi Jeffrey,

Many thanks for your very prompt response.

I guess that makes sense with respect to insurance in that if there is a fire or some similar event it will affect the whole building and not just the residential part!

From your experience is insurance generally the only management function that affects the entire block in a situation such as ours or are there others? i.e. should we be billing the commercial leaseholders only for insurance? Is the freeholder still responsible for the other management functions?

Many thanks for all advice, it is greatly appreciated.

[jeffrey]

From your experience is insurance generally the only management function that affects the entire block in a situation such as ours or are there others? i.e. should we be billing the commercial leaseholders only for insurance?
You tell us! See s.96(5) re what else counts as 'management functions'.

Is the freeholder still responsible for the other management functions?
No, because of s.96(2).

[specialist]

The cover could be wortless it seems you were not given best advise!!!