Insurance and Right to Manage

[Elemy]

I wonder if someone could please help me with the issue of Insurance and RTM. I know that the RTM takes over the right to arrange Buildings Insurance, and I wanted to put it in the name of the RTM with the freeholder listed as an interested party. This seemed to be correct to me and fair - especially as we are the ones that need to manage any claims that result.

The managing agents (extremely nasty and often wrong legally whether on purpose or by accident) has written to us and said that we have to put the insurance in the name of the freeholder with us as the interested party.

The freeholder has told us that we have to deal with the managing agents on all these issues, so they are acting on his behalf (in fact we wonder if they are related)

As we have had really terrible trouble with the managing agents (I have another thread about them threatening court action at the moment as we are withholding service charges) I am concerned about giving them any power.

I suppose my questions are:

Can I insist that the insurance is in the name of the RTM?

If it is in the name of the freeholder (and 'managed' effectively) by the management company could this cause us problems?

Any other advice on this?

I have checked our lease and it does say that the freeholder is responsible for insurance, which is their arguement, but I wondered if the RTM having responsibility for insurance meant that this clause is no longer valid - and that as long as we have them listed as an interested party on the policy that we are covered.

I do hope this makes sense! And any and all help would be so very much appreciated!

With thanks!

[jeffrey]

RTMCo. takes-over all freeholder's functions except collecting ground rent. See s.96-103 (esp. s.96/97) of 2002 Act.

[Poppy]

I would insure the block in the freeholder’s name with the lessees and any mortgagees as the interested parties. The RTM company does not own anything.

[Elemy]

Dear Jeffrey - thank you for the references. I understand from this that we take over the 'function', and can therefore arrange it, but can we put it in our name (ie of the RTM) or do we have to put it in the name of the freeholder?

Dear Poppy - this seems like it might be the route of least resistance, but do we have to. Every single dealing we have with the freeholder causes problems and I would hate the insurance to end up being a problem if it is in their name.

Many thanks to both of you though for helping me through this!

[Poppy]

If you can find an appropriate insurer willing to insure a party that does not actually own the insured property – buy it.

When was the building last valued by a surveyor for rebuilding costs?

[Gordon999]

1. The policy of many insurance companies may only allow claims under the policy from the named "policy holder" and other noted parties .

So I would insure your block in joint name of "freeholder and RTM company" subject to a clause " the interests of the leaseholders and their mortagagees are noted".

Look for quotes from an insurance broker offering annual "block of flats insurance cover"

The building re-instatement " declared value" after total destruction should include removal of debris, architects fees and rebuild costs which Poppy refers to need for an updated valuation by a Surveyor. The broker may propose a policy cover for an "insured value" of 20-30% above your "declared vaue" . If you don't have an ready updated "insured value" figure , then temporarily use the figure last year's policy to obtain quotes.

2. To check if freehold company and managing agent are related - download a copy of the annual accounts for both companies from Companies House (cost one pound each ? ) and check for same name of company directors, addresses etc and ultimate controlling company.

[Elemy]

Dear Poppy

The building is only 2 years old, and we have quoted on last years declared value. However, last year the freeholder increased the value declared by 20%, which I understand to be way above the rate, and so we thought this was a fair thing to do. So we haven't had a survey but actually we believe we might be over insured.

Perhaps we might look to do this next year though - how often do you recommend?

Dear Gordon

Thank you for the information about what to state on the insurance form - that sounds like it should cover it. I'll go back to those I've got quotes from and see who will be able to do this.

I've just tried to look at the forms from Companies House and there seems no definite relationship - sadly. However the behaviour of both is very strange - for instance (on another thread), the MA refuses to issue us with the formal ground rent demands, so we have said that we will withhold payment until we receive these, and have copied the freeholder and explained that we don't want to withhold the rents, but will do so until we get the right documents as is our right (service charges are also not being provided with the summary of rights and obligations). You would think that the freeholder would want his money and so tell them to issue the demands, but he hasn't . Very very strange! I assume it is someway of trying to get as much money out of us over the next couple of weeks before the RTM takes over.

Thanks so much to all - I'm going to go back to the insurers on Monday with all this advice.

[paulb67]

Hi Elemy

I felt that some of the previous posts weren't quite accurate so I hoped I could try and clarify. Here goes.

The RTM has an insurable interest as they are responsible for insuring the building, so not owning it, is not an issue.

I'd be happy with a policy in the name of either the freeholder or RTM. But to be sure, let the insurers know of your specific circumstances.

Most of the specialist policies automatically note the interest of relevant parties without the need to specifiy them.

The only issue that can sometimes arise is at claim time. The insurer often issues the settlement cheque in the name of the policyholder. Easily solved. When making a claim tell the insurer who you are and to make the cheque payable to you.

I arrange payment of dozens of claims a month and in many cases they are paid to the leaseholder/tenant (so not noted as the policyholder) as they are the ones that have paid for the repair work.

Rebuilding valuations should be done at least every 5 years. As yours is a new build I'd recommend that a rebuild survey is done. You're probably relying on the contractors build cost and as Gordon999 says there are things like debris removal to include as well. If you post the current sum insured, I can give you an idea of likely cost.

Now the hard bit. Some buildings policies are arranged on a Day One Uplift basis. There's a declared value (the day one bit) and a sum insured (the declared value plus a percentage uplift, typically anything from 15%-50%).

The point of the uplift is to protect the policyholder from the effects of inflation during the policy period, in the event of a claim. Therefore the extra cover only protects against inflationary costs and not underinsurance.

If the declared value is correct at day one of the policy, no problem. If it's less than it should be, this is underinsurance and the insurers could still proportionally reduce any claim (called average).

The uplift is normally provided for free. The premium is based on the declared value (the lower figure).

One of the specialist rebuilding surveyors I use has recently said that 75% of the buildings that they were asked to calculate a rebuild value on, were underinsured. So a common problem.

Use one of the specialist brokers and you should be fine.

Good Luck.

[Gordon999]

elemy,

Since you already know your freeholder's agent is nasty, its better to put the RTM's name as policy holder . Ask the insurance broker to include wording in policy "The interests of the freeholder, lessees and their mortgagees are automatically noted".

Get some competitive quotes from
www.residentsline.co.uk or
www.flatprotect.co.uk
- these will offer insurance cover for block of flats and get ready for handover of service charge account from current managing agent.

[jeffrey]

I found Residentsline really helpful and much better value for money than other insurers.

[kally]

Hello Friends......

The 2002 Commonhold and Leasehold Reform Act (applicable in England and Wales) legislation provides an opportunity for flat owners, to run their own affairs and to make their own decisions about the management and upkeep of their flats, including the insurance, repairs and service charges by means of The Right To Manage Process (RTM).

Thanks

[quarterday]

The covenant to insure (and lay out the proceeds of a claim in repairing/rebuilding) is almost always a freeholder's covenant and the policy OUGHT, in my view, therefore, be in their name. If your RTM company in future years overlooks sending off the premium in time for renewal some lessees and more particularly their lenders might look to the freeholder for damages if the policy had been allowed to lapse. For that reason if for whatever reason the policy is placed with the RTM company as policyholder the freeholder's name and address should be noted on the schedule with written instructions to the insurers that the policy should not be cancelled without the freeholders express confirmation in writing.

I would suggest however that the RTM company should, if possible, and subject to the above place the policy in the name of the lessor with the correspondence address given as that of the RTM company. Even if the RTM company is statutorily entitled to insure there is no new covenant entered into in favour of each of the lessees to maintain an insurance policy for the rest of the term of the lease; and, more to the point , should the RTM fail to insure, there is little point a lessee suing a RTM company as it is likely to have negligible assets in contrast, in general to the financial circumstances of the freeholder.

I have seen instances where, following an initial burst of enthusiasm leading lights of the residents' management companies evaporate and/or sell up , and either the annual return is not completed or officers cannot be found within the proscribed period to fulfil the statutory offices as required by Companies House with the result that the Management Company gets struck off. Result? Block uninsured.

It is worth going to a broker who is specialist in landlord's cover for blocks of flats. The cover is likely to be wider in scope and more in accordance with your needs than through a mass-market general insurance office

[jeffrey]

The 2002 Commonhold and Leasehold Reform Act (applicable in England and Wales) legislation provides an opportunity for flat owners, to run their own affairs and to make their own decisions about the management and upkeep of their flats, including the insurance, repairs and service charges by means of The Right To Manage Process (RTM).
But it does not change any lease covenants. All that happens is that the leaseholders collectively (acting as L) arrange own insurance.

[Gordon999]

The management functions under the Right to Manage ( Schedule 11 of CALRA 2002 ) are explained by section 96 which states -

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.

Under the above set of clauses, the RTM company takes over all landlord functions except for re-entry and fortfeiture. There is no specific wording to require the RTM company to insure the building with freeholder company named as the policy holder so the freeholder interest could be included with the interests of the leaseholders and mortgagees as interested parties.