Some aspects of owning a leasehold flat are confusing.
One of these is building insurance.
So, do you need it?
Read on to find out.
What is building insurance?
Building insurance is a type of insurance policy that covers a building’s structure, such as the:
- Walls
- Roof
- Stairs
- Floors.
It provides financial protection against any potential hazards or situations that may cause damage to the building.
A building insurance policy should cover the total cost of rebuilding the property. The cover should include fees for demolition, site clearance, and architects. It will also usually cover damage or loss caused by:
- Frozen and burst pipes
- Fire
- Storms
- Floods
- Explosions
- Fallen trees or other objects
- Subsidence
- Vehicle collisions
Does building insurance cover contents of buildings?
No, building insurance doesn’t cover the contents of the building. A separate contents insurance policy is required for belongings.
What is a leasehold flat?
A leasehold flat is a common type of property ownership in which the buyer holds a long-term lease from the freeholder, who can be any of the following:
- A landlord
- Local authority
- Housing association
- Property management company.
The lease gives the leasehold owner the right to occupy the property for a specified period, typically between 99 and 125 years. The flat can be bought and sold during that term.
The freeholder owns the structure, any common areas of the building, and the land it is built on. They are typically responsible for the repair and maintenance of these parts of the building.
Costs for leaseholders
During this time, the leasehold owner is responsible for paying ground rent to the landlord. They are also responsible for any repair and maintenance of the property.
Unless the property is purchased outright or the lease is extended, the property will revert to the freeholder at the end of the lease period.
Do I need building insurance for a leasehold flat?
Building insurance is typically the responsibility of the freeholder, not individual leaseholders.
The freeholder can insure the entire development where the particular flat is located.
The cost of the building insurance may be included in the ground rent paid by the leaseholder to the freeholder or charged separately depending on the individual flat and circumstances.
This insurance will not usually cover the possessions of individual leaseholders. If you have a leasehold flat, you must take out contents insurance to protect your belongings.
In some cases, the lease may require that the leaseholder take out building insurance from a named insurer.
So, if you own a leasehold flat, you might find that the freeholder has taken care of buildings insurance for the property. However, there is no guarantee of this. You should always check the lease or ask a solicitor to check on your behalf.
If the freeholder has not arranged for building insurance on the property, you will need to get your own.
In a multi-flat development, it may be easier and cheaper to collaborate with other leaseholders and purchase a policy together. Teaming up can be an ideal way to ensure that the entire building is insured with the same level of cover.
Advantages of having building insurance for a leasehold flat
Getting a mortgage
Most lenders will require that building insurance has been or is going to be taken out on the property before they agree to release the funds.
In the case of a leasehold flat, the lender may require that building insurance is arranged by either the freeholder or the leaseholder.
Damage cover
Getting insurance on a leasehold flat protects you financially should any damage occur. It could include damage due to fire, flooding, subsidence, burst pipes and more.
Problems such as these can be costly to repair out of pocket.
Advantages of arranging your own building insurance
Save money
Rather than paying an amount set by the freeholder based on their choice of insurer, leaseholders can shop around and find a better deal.
More control
When arranging your buildings cover for a leasehold flat, you have more control about what’s included, such as optional extras or a buildings and contents insurance package.
Work together
When leaseholders are responsible for their building insurance, they can benefit from teaming up with other leaseholders to get a policy.
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