Buildings insurance premiums are generally one of the least challenged annual charges as between landlords and tenants – although there has been a history of disputes surrounding whether or not the landlord has been reasonable in obtaining the best quote possible – predominantly because tenants understand that if the building their property is part of falls down, they have nowhere to rent, and therefore this significantly impacts the value of their lease. Accordingly, it is in their interest to ensure the landlord has sufficient funds available to obtain their buildings insurance policy and maintain continuity of cover.
This being said, it is not uncommon for tenants to have presumed that the policy would ‘obviously’ cover a specific form of risk, only later to find out that it doesn’t. But why might this be? Well the landlord’s obligation to insure the building is a contractual obligation defined within the terms of the lease. Therefore, if the lease does not say that ‘the landlord must insure for storm damage to fences’, just because a tenant might consider this to be a perfectly reasonable risk to be included in the buildings insurance policy, does not mean that the landlord will actually have this particular risk covered.
Equally, landlords could be exposed when they do not pay proper care and attention to the terms of any leases, particularly if extensions and / or overriding leases have been granted at different stages, and drafted by different lawyers, so the various demises are no longer under standard terms.
Where there is a share of freehold, and the lessees hold an interest, it is generally quite simple to have a discussion amongst the relevant parties, and people will take a collective view about which risks they want buildings insurance coverage for. However, what happens when you have a company freeholder, with a Board of Directors? Or a Right to Manage Company? Which member has been delegated the task of obtaining the buildings insurance quotes? Have they checked the terms of the leases to ensure there is adequate cover? Has the issue of buildings insurance been delegated to a managing agent and are they responsible for checking the cover being obtained is adequate as compared to the lease obligations or have they excluded their liability?
The Solution? My advice for the starting point when approaching leasehold matters is seldom different: First, carefully read and try to understand the terms of your lease. Whether you are a tenant, a landlord or managing agent, always start with the terms of the lease and make sure you check these properly. If you are concerned that your buildings insurance policy does not contain sufficient coverage, or are merely curious, a tenant can simply ask the landlord for a copy of the documents (Schedule to the Landlord & Tenant Act 1985).
As a general practice, all tenants should consider obtaining a copy of the building insurance policy from their landlord or the managing agent to ensure they do not fall foul of their non-vitiation clauses or, if sub-letting, to ensure any undertenancies comply with the terms of the insurance but are all landlords and managing agents similarly checking the buildings insurance policy to ensure complete compliance with the relevant lease terms and obligations?
Charles Jamieson is an experienced solicitor in the Bishop & Sewell Dispute Resolution Department, taking instructions in Landlord & Tenant, Property, Commercial and Chancery disputes. If you would like to speak with Charles, or any member of the dispute resolution team, contact Bishop & Sewell by email to: firstname.lastname@example.org
The content of this note should not be considered legal advice and each matter should be considered on a case by case basis.