Is it necessary, and if so, who pays? It seems even the experts disagree. A Leasehold Valuation Tribunal recently asked to address these questions promptly had its verdict reversed by an Upper Tribunal.
Eleven residents of a small block in Swindon asked the LVT to determine whether their landlord had a right to charge them for terrorism insurance over and above the regular buildings insurance. The LVT decided that there was no express obligation in the terms of the lease, and couldn’t see that the building, or Swindon in general was a specific target. A victory for common sense! But sadly, a short-lived victory.
The freeholder wasn’t happy with the outcome and appealed to the Upper Tribunal, which reversed the decision on 16th June. The reasoning is quite convoluted but as far as I can tell it goes: the lease requires cover for fire and explosion. Explosions can be caused by terrorism, therefore this is a legitimate additional cover. It’s covered in much more detail in barrister Amanda Gourlay’s blog.
Looking at the commentary on the verdict, the insurance industry generally welcomes it – no surprise there! But they do make a valid point that although most buildings insurance policies cover fire and explosions, they won’t cover the biological or radioactive contamination that might occur from a so-called ‘dirty bomb’.
Scary stuff! Perhaps every home should have terrorism cover? Well as it happens most do! Anyone who buys residential insurance directly, i.e not via a landlord or managing agent, has terrorism cover provided by the Government through the Pool Re scheme. Commercial organisations have to pay for it, and that includes commercial landlords. Curiously it seems the tribunal didn’t address the question of whether the freeholder was entitled to pass on costs not applicable to residents.
Neither government nor the insurance industry seem to have considered this from a leaseholders perspective. The same problem can be seen in the response to flood insurance. Following the severe flooding at the beginning of the year, the Government set up Flood Re so that premiums can be capped at reasonable levels and the full cost of insurance met from the government pool.
Sounds fine until you learn that leasehold properties with more than 3 tenants – i.e. almost all – are excluded. Ian Fletcher of the British Property Federation explained to the Telegraph, “We think the problem stems from the fact that insurers’ systems can’t cope with leasehold as a residential form of ownership. They are viewed as commercial properties from insurers’ viewpoints.”
This leaves leaseholders at the mercy of greedy landlords, who are under no obligation to show value for money, comparable quotes, or even to disclose any kickbacks. In 2012 Leasehold Knowledge reported commissions of between 25 – 45% and in 2009 the Guardian found premiums double the market rate quite common. The then Financial Services Authority told the Guardian they protect customers but in these cases the customer is the freeholder, and the leaseholder a mere ‘third party’. And incredibly it’s new replacement, the Financial Conduct Authority, is similarly incapable of acting!
These are just some of the reasons we are calling for a complete overhaul of leasehold law – and for that matter insurance selling!