The cost charged to us by our freeholder for our block insurance has increased dramatically since the previous year. When questioned, the freeholder responded that this his whole insurance portfolio had suffered an increase. But why should we be penalised by being part of his portfolio? Also, the sum covered is automatically index linked, which further increases the cost, but we do not know really if this truly reflects the need for the annual increase.
What are your views on these issues?
The FPRA replies:
The basic answer to your query is to see whether the charge that has been made is reasonable. The Landlord and Tennant Act 1985 clearly specifies that all service charge amounts, and this includes insurance, must be reasonable and if you consider it to be unreasonable you have the right, individually or collectively as a Resident’s Association to challenge the amount, if necessary taking it to a Leasehold Valuation Tribunal (LVT).
So the question is not so much one of whether the Freeholder’s portfolio has suffered an increase, but more, has the charge being made to your block reasonable? (and I stress your block as it has to stand on its own).
It may be that the charge for your insurances despite the increases are in fact reasonable because in the past you may have benefited from the good claims record of the overall portfolio and now although you are suffering an increase of premium that it is still a reasonable premium for insuring a block of your size and claims record.
The LVT would also look at not only the premium, but also the policy terms and conditions, the quality of the insurer, their administration and claims handling and other factors.
Turning to the sum insured, index linking is a blunt instrument and whilst building costs have increased it is worth always checking, perhaps every 3 years, that the actual sum insured is adequate to cover rebuilding costs and all associated costs in the event of a total loss, plus an adequate sum for “alternative accommodation”.
With a block of your size I would ask the Freeholder how they had arrived at the sum insured and I would expect that amongst your members there must have been some turn over and you may be able, perhaps, to gain access to a mortgage surveyor’s report that often mentions rebuilding costs.
As a final thought if you know the blocks claims record for at least 3 years, but preferably 5 years, you could approach alternative insurers for a quotation and if this proved competitive use this as a bargaining tool with your Freeholder.
Ultimately you could exercise the right to purchase your block, or indeed, the right to manage your block if these routes were of interest to you.