Buying A Joint Freehold And The Need To Arrange Block Of Flats Insurance
In England and Wales, over 90% of people that own a flat
, do not own the actual, physical, piece of land that the property sits on. Instead the property will be purchases on a leasehold basis. A separate freeholder, which can be an individual, business, charity or other corporate body, will own the land and will "lease" this back to the flat owner.There has been some abuse of this in the past, whereby leases were usually on a 99 year basis. Freeholders usually charged what is called a peppercorn rent; this is where a payment, usually less than 100, is made on an annual basis. As the lease period began to run out, the value of the property started to reduce and some Freeholders, started to charge extortionate fees for the leas to be renewed. The flat owners were in a catch 22 situation, if they did not renew the lease, their property became worthless. If the lease was less than 50 years, it was increasingly difficult to get a mortgage.
Legislation was changed to allow leaseholders to purchase a lease that was up to 999 years, Yes, the Freeholder would still receive a rent, probably more than peppercorn rent, but the leaseholder had a property that could not be devalued unfairly.
Where you have blocks of flats, it is up to the joint freeholder to arrange a block of flats insurance policy for the whole building. Another way for unscrupulous freeholders to make money was to arrange the insurance and then to add a significant fee. So, a commercial insurance company may charge a few thousand pounds and the freeholder would add half that again as an administration fee. This was all perfectly legal and if the leaseholders complained, because they could get a cheaper quote, the freeholder could still insist on controlling the insurance side of things.
However, things have changed a great deal and as we have said, legislation is on the side of the flat owners. This tends to affect converted properties, more than larger purpose built blocks of flats. Where there are Victorian or Georgian properties, that are converted into a handful of flats, then one policy is required, rather than individual policies.
You could, technically arrange one policy for each separate flat, but insurers are not keen to do this as there are the potential arguments about who is responsible for damage caused to the roof, garden walls and internal floors. Some insurers do still offer policies for single flats, but they are few and far between. Most will want to have one policy that covers the whole building.
As the legislation has changed this has allowed the owners of the flats to buy the freehold associated with the property. It is happening more and more and there would usually be a limited company set up of which the directors are the individual owners of each of the flats.
This is where, if a flat owners insurance policy is set up, the insured title comes from. Any payment made in respect of an insured loss is paid to the limited company. This way there is no onus on each of the flats to over-substantiate a claim or to have legal arguments between which flat is responsible for damage. If a pipe bursts, is it flat A's ceiling or is it flat B (upstairs) floor? These are all issues that cause problems with individual flats, but are solved when a block of flats insurance policy is in force.
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