Freeholder service and insurance charges?

Freeholder service and insurance charges?

0:04 AM, 29th June 2023, About 8 months ago 10

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Hi everyone, my family own several leasehold flats and in each case the leases allow the freeholder to arrange building insurance and to recharge this to the leaseholders.

Every time the property is valued by an RICS surveyor the insurance value has increased way beyond inflation and has now reached ridiculous levels so that the rebuilding cost is way above the market value of the property. The policies also have every add on like terrorism cover etc even though they don’t need them. The broker and the freeholder both obtain a commission on the policy and therefore have no incentive to seek competitive rates.

Does anyone have any suggestions on how to object/appeal as the broker and freeholder will not enter into any discussion on the policy levels? Is there a tribunal that could oversee this?

Thanks,

Steve


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Comments

BRACKS Mead

9:25 AM, 29th June 2023, About 8 months ago

mmmm Id like to know what others think of this too.

NewYorkie

9:50 AM, 29th June 2023, About 8 months ago

The government has told the insurers to get their act together and stop this practice of brokers paying huge commissions to freeholders and their managing agents. Often they are one and the same, so a clear conflict of interest.

The value of leasehold flats has been blighted by the double whammy of leasehold laws and 'cladding'. It is just wrong that the insured value should continue to increase, while the value is reducing. Also, it is rare that leaseholders claim on their buildings insurance because the excess is individual rather than on the policy. I had a situation where the cumulative excesses on a claim for a new roof, meant we couldn't claim on our insurance.

Conveniently, the cost of the repair was just below the excess... and the managing agent made £000s in management fees for the repair!

Brian Strickland

10:06 AM, 29th June 2023, About 8 months ago

Perhaps Right to Manage might be an option. If the Insurance is exorbitant take them to a Tribunal and show them alternative insurance quotes. We have 200 properties in South East Essex and most of them are on Block policies directly invoiced to us. Avergage insurance for a Victorian conversion 2 bed flat is £250.P.A. Worth reminding that the rebuild cost is what the premium should be based on. Not the OMV. Premiums like most things are on the rise. Brokers can get up to 40% commision on policies they write. Yes thats right 40%. Which is why the Direct insurers can undercut. Just Saying!

Mike Workman

10:19 AM, 29th June 2023, About 8 months ago

After many years in the insurance industry, I feel i can speak from an insurer's point of view.
The only time the build cost and the purchase price are similar is with a new build. After that, the prices change according to the different dynamics - e.g in times of high inflation, the build cost will increase, but tighter budgets mean buyers will want to pay less.
Also, rebuild cost can be significantly higher than the initial build cost if the whole house needs to be rebuilt, particularly terrace houses - and this is the cost you need to insure against.
Hope this helps

Nick Stott - The Homesure Group

12:33 PM, 29th June 2023, About 8 months ago

Hi Steve,
I own & run a Block Management company so I'm familiar with this process.
Firstly, your agent should be answering all of these questions directly.
Insurance premiums (from insurers) are up around 30%, due to the cost of materials & labour, but mainly because of the liability put on owners of properties with regards to the Building Safety Bill and the Fire Safety Bill.
In short; the insurance LIABILITY has increased, and the cost of REINSTATEMENT has increased.
Secondly, broker commissions are being reduced (potentially completely removed), so the brokers are already reduced their fees accordingly.
Thirdly, the underinsurance of buildings is a massive issue.
The first "get-out" method for insurers upon making a claim is to check the rebuild value.
Here's an easy example I always use (it happened to me personally, hence how I learnt):-
Purchase Price of property: £37,000
Original insurance rebuild value: £37,000 (cos, y'know, it's what I paid for it, right?)
Made a claim for £12,000.
They said the rebuild value was actually £120,000, so they REDUCED my pay-out by the same ratio, i.e. about 60%.
They explained that, although you can BUY a property for that price, it would cost MORE than its market value to rebuild due to:-
- demolition & removal of a mid-terrace (support the neighbouring walls etc.) - £40,000
- rebuild of an entire house, tied in with the neighbours - £80,000
= £120,000 rebuild value.
Crazy, but makes sense when you think about it.

My advice to you, if you haven't already, is to get a Desktop Rebuild Cost Assessment. They only cost £150 and there's no visit involved. You can then use this document to challenge your agent/broker.

Puzzler

14:46 PM, 29th June 2023, About 8 months ago

Mervin SX

7:26 AM, 1st July 2023, About 8 months ago

Steve,

Use the BCIS website to get a rough reinstatement value calculated, then employ a RICS approved surveyor to carryout a desktop reinstatement valuation or a physical reinstatement valuation.

Once you have these figures, speak to Paul Marshall at Alan Boswell Insurance Brokers on 01603 218385.
They are based in Norfolk, but they work across the UK.

If you get better values, put these to your current Managing Agents or Freeholder and get them to match it.

NewYorkie

8:13 AM, 1st July 2023, About 8 months ago

The BCIS website is very helpful. Updated to June 23, so inflation included.

Michael Crofts

21:42 PM, 1st July 2023, About 8 months ago

My favourite example of the contrast between rebuilding cost and market value was a shop my family inherited in what had been a busy High Street but it had declined so it was merely tertiary shopping and rental values were very low. It was a mid Victorian property, cellar and 3 upper stories. Brick and stone construction with some ornamentation and a slate roof. The rebuilding cost valuation was about £300,000 (this was some years ago, it would be at least 3 times that now). After a series of failed commercial and residential tenancies which cost more in legal fees than they produced in actual rent, and endless repair bills, we managed to find someone to take the property off our hands. We sold the freehold for £32,500 and heaved a sigh of relief. So the rebuilding cost of this property on which insurance MUST be based, was nearly ten times the open market value. My own house is a 17th century stone-built property, massive construction with walls nearly a meter thick at the base. It's probably worth £400,000 in today's market - it would cost at least a million to rebuild and that's what I insure it for.

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