Buildings Insurance for Blocks of Flats: What RTM Directors Need to Know

Buildings insurance for a block of flats is different from ordinary home insurance. The block is a single structure shared by multiple leaseholders, managed by a company (RTM or RMC), and subject to rules set by each individual lease. Getting it wrong — underinsuring, choosing the wrong policy type, or failing to update the rebuild value — can leave the whole building exposed and create personal liability for the directors who arranged it.

This guide explains what blocks need to cover, how the policy should be arranged, what the law requires of RTM and RMC directors, and how to handle commission and insurance costs under current rules.

This applies to England and Wales. It is general guidance, not legal advice.

Who arranges buildings insurance for a leasehold block?

In a leasehold block, the obligation to insure the building usually sits with whoever has the management obligation under the leases. This means:

• RTM company: once RTM is acquired, the management functions — including insurance — transfer to the RTM company. You choose and arrange the policy.
• RMC/freehold company: if the RMC owns the freehold or is named as the management entity in the leases, it typically holds the insurance obligation.
• Landlord-retained management: if no RTM has been claimed, the original landlord or their managing agent usually arranges block insurance and recovers the cost through the service charge.

If your block has claimed RTM, check your RTM company's memorandum and articles, and the terms of section 96 of the 2002 Act, which lists the management functions that transfer to the RTM company. Insurance is one of those functions — section 96(5) expressly lists "services, repairs, maintenance, improvements, insurance and management" as transferring management functions.

What buildings insurance for a block should cover

A standard block buildings policy covers the structure — everything in the building that is not owned by an individual leaseholder under the terms of their lease. This typically includes:

• External walls, roof, and foundations
• Common parts — hallways, staircases, communal gardens, car parks, bin stores, plant rooms
• Communal services — communal heating systems, lifts, entry systems
• Fixtures and fittings within individual flats that form part of the structure — this depends on the lease wording; most leases treat original fixtures (fitted bathrooms, kitchens) as structural

Most standard block policies also include:

• Property owner's liability — covers you if someone is injured in the building or on the premises and makes a claim against the company
• Employers' liability — required by law if the block employs anyone (including a caretaker or cleaner) under the Employers' Liability (Compulsory Insurance) Act 1969
• Loss of rent — covers loss of rental income if a flat becomes uninhabitable after an insured event
• Trace and access — covers the cost of finding the source of a leak or other damage

The rebuild value: why getting it right matters

You should insure the block for its rebuild value, not its market value. The rebuild value is what it would cost to demolish and reconstruct the building — this is usually significantly different from what you could sell the property for.

Underinsuring creates a problem called average. If you insure for £2 million but the actual rebuild cost is £4 million, many insurers will only pay 50% of any claim — not just on a total loss, but on any claim, including partial damage. A £100,000 roof repair could result in only £50,000 being paid.

To get the rebuild value right:

• Obtain a professional rebuilding cost assessment from a chartered surveyor. Professional bodies such as the RICS typically recommend a professional rebuild valuation roughly every three years, though the appropriate frequency will depend on your block's age, construction type, and any major works.
• Review and update the sum insured annually when renewing — building costs increase, and the BCIS (Building Cost Information Service) house rebuilding cost index can indicate whether your current figure needs adjusting.
• As a rough cross-check, the ABI rebuilding cost guidance explains how to calculate the correct sum insured for a residential property.

If you are uncertain, err on the side of a higher insured value. Overinsuring costs a small premium increase; underinsuring can mean a shortfall of hundreds of thousands of pounds in a major claim.

Your legal duties on insurance

As an RTM or RMC director, your insurance obligations come from two sources:

The leases: most leases require the management entity to maintain buildings insurance on specific terms — often naming the type of risks, the minimum cover level, or that the insurer must be an approved UK insurer. Read your leases before placing cover.

The Landlord and Tenant Act 1985: under the Schedule to the LTA 1985 (given effect by section 30A), leaseholders have rights to request information about the building's insurance policy and to challenge the insurance through the First-tier Tribunal if it is not reasonable. This means:

• You must, on request, provide leaseholders with a written summary of the insurance cover — the insurer, the sum insured, the policy terms.
• You must allow leaseholders to inspect the policy document within a reasonable time.
• Leaseholders can apply to the First-tier Tribunal if they believe the insurance is unsatisfactory.

Your obligation is to arrange insurance that is adequate and reasonably priced. That means comparing policies, not simply renewing with the incumbent each year without checking the market.

Insurance commissions: what the rules say now

Insurance commissions — payments from insurers to managing agents or freeholders in exchange for placing the block's insurance with a particular provider — have been a significant issue in leasehold. These commissions are passed through the service charge, meaning leaseholders pay for an arrangement that does not benefit them.

The FCA introduced rules under its leasehold buildings insurance rules that came into effect for the insurance distribution chain from 2024 (confirmed by the FCA in its 2024 policy statement). Under these rules, any commission paid in connection with a leasehold block insurance arrangement must represent fair value to the leaseholder — which in practice means the commission must reflect genuine work done by the recipient, not simply a referral payment.

For RTM companies and RMCs arranging their own insurance directly (without a managing agent), commissions are not generally an issue — you are the arranging entity, not a recipient. The fair value rules primarily affect managing agents and freeholders placing insurance on others' behalf.

The Leasehold and Freehold Reform Act 2024, sections 59-60, will introduce additional restrictions — replacing open-ended commissions with defined "permitted insurance payments." These provisions are not yet in force as of mid-2026 and require secondary legislation. See our guide to the Leasehold and Freehold Reform Act 2024 for which provisions are already in effect and what is still pending.

Shopping for block insurance

When choosing a block policy:

1. Seek specialist block insurance brokers — ordinary home insurance brokers often cannot access the block insurance market. Specialist brokers (such as those listed by the British Insurance Brokers' Association) compare policies across multiple underwriters.

2. Read the policy wording carefully, not just the summary. Look for exclusions around escape of water, subsidence, and trace and access cover.

3. Agree the sum insured before placing cover — have the rebuild value assessed, or at minimum use the ABI calculator as a baseline.

4. Get quotes from at least two or three brokers — the block insurance market is competitive and significant price differences for comparable cover exist.

5. Review annually — a policy that was competitive three years ago may not be today.

What to do if a leaseholder disputes the insurance

If a leaseholder believes the buildings insurance is inadequate, too expensive, or arranged with an undisclosed commission, they can:

• Request the policy summary and inspect the full policy document under the Schedule to the LTA 1985 (given effect by section 30A)
• Apply to the First-tier Tribunal (Property Chamber) for a determination on whether the insurance arrangements are reasonable

As a director, the best protection against tribunal challenges is to document your insurance decisions: that you obtained comparative quotes, that you updated the rebuild value, that you chose the policy in the best interests of the leaseholders as a group.

Good record-keeping on insurance decisions forms part of the broader compliance picture for RTM and RMC directors — see our guide to RMC and RTM director responsibilities for the full picture.

Sources

• Commonhold and Leasehold Reform Act 2002, s.96 — management functions transferred by RTM (including insurance)
• Landlord and Tenant Act 1985, s.30A and Schedule — insurance information rights
• Employers' Liability (Compulsory Insurance) Act 1969
• Leasehold and Freehold Reform Act 2024, s.59 — insurance costs (prospective)
• ABI — Calculating your rebuild cost
• RICS Service Charge Residential Management Code
• FCA — Leaseholder buildings insurance
• FCA — FCA confirms leasehold buildings insurance reforms
• First-tier Tribunal (Property Chamber)