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Insurance: how to challenge

Most long leases require the Freeholder to insure and then to recover the premiums from the Leaseholders. In respect of residential leases Leaseholders have various rights.

The starting point as always are the terms of the lease and what these allow the Freeholder to do and recover. It is important to consider but usually the lease terms will be drawn allowing the Freeholder to insure with whom ever they wish and for what risks they consider appropriate. Often this results in a premium which the Leaseholders feel is unreasonably high.

As with all such matters we would in the first instance suggest that the concerns are bought to the attention of the Managing Agent or Freeholder. They ought to be prepared to engage with you to show how the premium was achieved and that it is reasonable. Sadly not all do so. If not the Leaseholder is entitled under the Landlord and Tenant Act 1985 to request a right to inspect the policy and take copies. This means not only the premium receipt but copies of the policy and all the relevant schedules which should include details of claims history etc.

Armed with details of the policy it is then possible to obtain alternative quotes. We pause at this moment to remind Leaseholders that they need to obtain alternative quotes which are on similar terms unless there are good reasons to depart from the terms of the existing policy. Before departing from those terms we would always suggest that you obtain advice from an experienced insurance broker so you can support any argument that the terms on which the Freeholder had been insuring were unreasonable.

Once you have an alternative quote, if lower, we would again suggest you submit it to the Freeholder for comment. Remember the Freeholder does not have to go with the cheapest quote but he needs to be able to show the quote he has obtained is reasonable in all the circumstances ( see section 19 of the Landlord and Tenant Act 1985). Assuming still you get nowhere then you can look to make an application to the Leasehold Valuation Tribunal (LVT) under section 27A of the Landlord and Tenant Act 1985. The application should attach a copy of the Freeholders demands and your evidence. This should include your quote, the proposal form and any other information such as letters etc with your broker and or the Freehold. Remember you will need to show to the LVT that your quote is on similar terms to those originally obtained by the Freeholder (or other reasonable terms) and is at a significantly lower price.

Often these disputes are dealt with on the papers. This means it is vital your case is clear. The Freeholder will be invited to comment upon your case and to explain why the premium which they claim is reasonable. Usually then the Leaseholder will have an application to respond. Remember this will be your last chance to have a say and it is worth commenting on what the Landlord says. Landlords will often say they used an independent broker who tested the market. If there is no proof as to how the market was tested you should point this out. If the Freeholder does not comment on whether they have received a commission this is a point worth raising as more often than not they will!

Remember just because the Premium seems high will not necessarily make it unreasonable. It is important to consider the terms. Things such as the claims history and if many of the properties are sublet with the lease not allowing the Freeholder control over this can affect the terms companies quote on. We have also seen Leaseholders obtaining quotes where the cover is split between 2 or more insurance companies with each having a percentage share of the cover. In the writers opinion it would be reasonable for a Freeholder to refuse such a quote. Dealing with 2 or more insurers could be difficult.

It is important to do your homework but if having done this the premium still seems high and the Freeholder will not budge the LVT can assist.

If you need help on this or any other long residential lease issue please do contact us.

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