Buildings Insurance for Blocks of Flats: A Guide

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.

This guide explains who arranges the policy (including what changes under right to manage), what it should cover, what the law requires of RTM and RMC directors, and how commissions are treated 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:

• RMC/freehold company: if the RMC owns the freehold or is named as the insuring party in the leases, it holds the insurance obligation.
• RTM company: once the right to manage is acquired, the insurance function transfers to the RTM company — see the next section.
• Landlord-retained management: if no RTM has been claimed, the landlord or its managing agent usually arranges block insurance and recovers the cost through the service charge, as the leases allow.

How insurance works under right to manage

This is the question new RTM boards ask first, and the answer is in the Commonhold and Leasehold Reform Act 2002.

The insurance function moves to the RTM company. Section 96(2) provides that the management functions a landlord has under the leases "are instead functions of the RTM company", and section 96(5) defines management functions as "functions with respect to services, repairs, maintenance, improvements, insurance and management". From the acquisition date, the RTM company arranges the block policy and recovers the premium through the service charge.

It insures on the leases' terms. Because the RTM company takes over the landlord's function under the lease, it inherits the insurance covenant as written: the risks the lease requires to be covered, any requirement to insure for full reinstatement value, and any rules about the insurer. Read the insurance clause in every lease before placing cover.

The freeholder steps back — with one exception. Section 97(2) provides that the landlord "is not entitled to do anything which the RTM company is required or empowered to do under the lease by virtue of section 96, except in accordance with an agreement made by him and the RTM company". But section 97(3) adds: "subsection (2) does not prevent any person from insuring the whole or any part of the premises at his own expense". A freeholder may keep its own cover if it wishes — at its own expense, not through the service charge.

Leaseholders' insurance rights now run against the RTM company. The tenants' rights to information about the insurance (below) are applied to the RTM company by Schedule 7, paragraph 5(2) of the 2002 Act: "References to the landlord are to the RTM company." When a leaseholder asks for the policy summary, it is the RTM company's job to provide it, within the statutory time limit.

Plan the handover. The outgoing landlord's policy may run beyond the acquisition date. Agree in advance when the RTM company's own policy will start, make sure there is no gap in cover, and make sure the rebuild value is checked rather than copied across.

Think about the directors too. Insurance for the building is not insurance for the board. Ask your broker about directors' and officers' (D&O) liability cover for the volunteer directors alongside the buildings policy.

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, so check what each lease includes in the demise

Most standard block policies also include, or can include:

• Property owner's liability — covers the company if someone is injured in the building or on the premises and makes a claim against it
• Employers' liability — an employer carrying on business in Great Britain must generally hold it under the Employers' Liability (Compulsory Insurance) Act 1969, so check it is in place if the company employs anyone directly, such as a caretaker or cleaner
• Loss of rent or alternative accommodation — 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 is dangerous because many policies contain an average clause: if the sum insured is less than the true rebuild cost, a claim can be reduced in proportion. Insure for £2 million where the rebuild cost is £4 million, and a policy with an average clause might pay only half of a £100,000 roof claim. Check your policy wording for it.

To get the rebuild value right:

• Obtain a professional rebuilding cost assessment from a chartered surveyor, and repeat it periodically — more often after major works or if building costs move sharply.
• Review the sum insured at every renewal. Building cost indices can indicate whether the figure needs adjusting between valuations.
• As a rough cross-check only, the ABI's free rebuild cost tool gives general guidance on the rebuild cost of houses and some types of flats. A block needs a surveyor's figure.

If you are uncertain, err on the side of a higher insured value. Overinsuring costs a little more premium; underinsuring can mean a large shortfall on a major claim.

Your legal duties on insurance

As an RTM or RMC director, your insurance obligations come from three places.

The leases: most leases require the insuring party to maintain buildings insurance on specific terms — often naming the risks, the basis of cover or requirements about the insurer. Read your leases before placing cover.

Reasonableness: the premium is recovered through the service charge, and under section 19 of the Landlord and Tenant Act 1985 costs count towards a service charge "only to the extent that they are reasonably incurred". A leaseholder who thinks the premium is too high can ask the First-tier Tribunal to decide what is payable under section 27A. That is why comparing the market at renewal, and recording that you did, matters.

The leaseholders' information rights: section 30A of the 1985 Act gives effect to the Schedule to the Act, "which confers on tenants certain rights with respect to the insurance of their dwellings". In summary:

• A written summary on request. Under paragraph 2 of the Schedule, a leaseholder who pays for insurance through the service charge may, by notice in writing, require a summary of the insurance. You must supply it within 21 days of receiving the notice, and it must include the insured amount, the name of the insurer and the risks covered — or you can supply a copy of the policy instead.
• Inspection and copies. Under paragraph 3, the leaseholder may require reasonable facilities to inspect the policy and associated documents (such as evidence that premiums were paid), or copies of them, again within 21 days. Inspection must be free of charge.
• It is an offence to ignore it. Paragraph 6 makes it a summary offence to fail, without reasonable excuse, to perform these duties.
• Leaseholders can notify a claim. Paragraph 7 lets a leaseholder notify the insurer of possible damage within the policy's claim-notification period.

There is also a separate right in paragraph 8 to challenge a landlord's choice of insurer — but it applies only where a lease requires the tenant to insure with an insurer the landlord nominates or approves, which is not the usual arrangement in a block where the company insures the building.

If remediation costs are in play, see our guide to the Building Safety Act cost protections.

Insurance commissions: what the rules say now

Insurance commissions — payments from insurers or brokers to managing agents or freeholders in connection with placing the block's insurance — have been a long-running issue in leasehold, because the premium that carries them is paid by leaseholders through the service charge.

In September 2023 the FCA confirmed reforms under which, "from the new year", insurance firms would be required to "act in leaseholders' best interests" and would be "banned from recommending an insurance policy based on commission or remuneration levels". It added that insurers must ensure their policies "provide fair value to leaseholders" and provide information about the policy and its pricing, "including the detail of any commission paid", and that it "expects brokers to immediately stop paying commissions to third parties (including property managing agents and freeholders) where they do not have appropriate justification and evidence for doing so in line with our rules on fair value".

For RTM companies and RMCs arranging their own insurance directly through a broker, the practical point is simple: ask the broker to set out in writing what it is paid, and by whom, and keep that with your renewal records.

The Leasehold and Freehold Reform Act 2024, section 59, will go further. It inserts a new section 20G into the 1985 Act under which "excluded insurance costs" — costs attributable to payments made to arrange or manage insurance, such as commissions or remuneration, that are not a "permitted insurance payment" as defined in regulations — cannot be recovered through a variable service charge. legislation.gov.uk shows section 59 as prospective, not yet in force. 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. Use a specialist block insurance broker — ordinary home insurance brokers often cannot access the block insurance market. A specialist broker compares policies across multiple insurers.

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

3. Agree the sum insured before placing cover — have the rebuild value assessed.

4. Get more than one quote — prices for comparable cover can differ.

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:

• Require the policy summary and inspect the policy and associated documents under paragraphs 2 and 3 of the Schedule to the 1985 Act
• Apply to the First-tier Tribunal (Property Chamber) under section 27A for a determination of whether the insurance element of the service charge is payable, and in what amount

As a director, the best protection against a challenge is to document your insurance decisions: that you obtained comparative quotes, that you updated the rebuild value, and that you chose the policy in the 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.

Frequently asked questions

Does the RTM company have to insure the building?

If the leases put the insurance obligation on the landlord, that function becomes the RTM company's on the acquisition date under section 96 of the 2002 Act, and it must insure on the leases' terms.

Can the freeholder still insure the building after right to manage?

It cannot exercise the RTM company's insurance function except by agreement (section 97(2)), but section 97(3) allows anyone to insure "at his own expense". It cannot pass that cost to leaseholders through the service charge.

Who do leaseholders ask for the insurance details after right to manage?

The RTM company. Schedule 7, paragraph 5 applies the 1985 Act's insurance-information rights to it, with a 21-day deadline to respond.

Sources

• Commonhold and Leasehold Reform Act 2002, s.96 — management functions transferred by RTM (including insurance)
• Commonhold and Leasehold Reform Act 2002, s.97 — management functions: supplementary
• Commonhold and Leasehold Reform Act 2002, Schedule 7, paragraph 5 — insurance information under RTM
• Landlord and Tenant Act 1985, s.30A and Schedule — insurance information rights
• Landlord and Tenant Act 1985, s.19 — reasonableness
• Landlord and Tenant Act 1985, s.27A — liability to pay service charges
• Employers' Liability (Compulsory Insurance) Act 1969, s.1
• Leasehold and Freehold Reform Act 2024, s.59 — insurance costs (prospective)
• ABI — rebuild cost tool
• FCA — Leaseholder buildings insurance
• FCA — FCA confirms leasehold buildings insurance reforms (29 September 2023)
• First-tier Tribunal (Property Chamber)