Who Insures a Block of Flats?
The freeholder is usually responsible for arranging and insuring the building on one policy that covers the structure, the common areas and other other communal facilities. It will comprise part of the service charges so if any flats are required to be insured individually this makes the lease to that flat defective. Separate policies do not cover these areas but despite this, insurers are still offering individual policies for each individual flat. This is known as dual insurance and occurs when a purchaser is sold an individual policy that is not required when the building is insured on the one block policy. This is something that should be clarified during the conveyancing process, before the mortgage is finalised. When this is later discovered, leaseholders will not be able to get a refund from the freeholder because they have adhered to their own covenant to insure. It may also prove somewhat difficult to get a refund from the broker for the separate policy.
If insurance is placed by the managing agent then they are under significant restrictions administered by the FCA These restrictions are administered by the Financial Conduct Authority (FCA) with regulations allow varying levels of involvement in insurance matters being subject to the adherence of strict procedures being adhered to. Unless the right to insure is granted by way of a lease of the common parts the resident management company (comprised of the leaseholders) will be able to instruct the managing agent to insure the building. If the agents also handles any other insurance-related matters that makes the meet the definition of a regulated activity then the FCA requires them to be regulated.
The type of insurance regulations covered (and the reason managing agents fall into the net) are as follows:
- Arranging insurance and choosing the best quote (with the former as a given as most leases don’t allow leaseholders to get their own buildings insurances, or for other leaseholders to club together to buy it);
- Advising the leaseholders (who are the clients) to include recommending a particular insurance company;
- Dealing with the administration which includes placing the insurance and ensuring the premium is paid to the insurance company (or broker). It also includes the provision of documentation during the conveyancing process to lenders and solicitors.
How Agents Become Authorised and Regulated
There are some ways in which a managing agent can become authorised and regulated which are as follows:
- Directly authorised and regulated by the FCA which provides a wider scope incurs a larger cost;
- Act as an appointed representative of the broker who takes responsibility for their conduct instead of it being directly controlled by the FCA but will likely involve dealing with the principle broker;
- By being a member of an organisation such as the Association of Residential Managing Agents (ARMA) or the Royal Institution of Chartered Surveyors (RICS).
All other sources of income and benefits to the managing agent arising out of the management of buildings insurance should be declared to the client and to the leaseholders and should only be retained in return for a service of value. These may include insurance fees (including commissions)mwhich chould only be kept by the informed consent of the client. The amount of the income should be declared annually with the year-end service charge accounts.
Should a claim need to be made, the role of the Claims and Loss Adjusters can be read here.