Buildings Insurance: The Basics

Common buildings insurance, often called ‘block cover’, is the insurance policy that covers the entire structure of your tenement or flatted development. This includes all the shared or communal parts, as well as the structure of your individual flat.

So the important basic point in a tenement or flatted development is that you won’t be personally organising your buildings insurance – but you need to organise your own home contents insurance. The common buildings insurance policy covers the cost of repairing or completely rebuilding the property in the event of major damage like fire, flood, storm damage, or subsidence. It covers the foundations, external walls, roof, common stairwells, and all the structural elements of your flat (for instance, plumbing, wiring, and wall finishes). But of course you’ll need to check your particular policy details.

Why Doesn’t Every Owner Just Insure Their Own Part?

It might seem easier to take out individual policies, and indeed you might plug your details into an insurance comparison website and feel that you could insure your part at a cheaper premium. But that “fragmented” approach really isn’t practical when you look at it more closely:

• If a fire or major flood affects the whole building, having one policy means there is only one insurer and one loss adjuster to deal with, streamlining the claim and rebuilding process.
• If a claim arises for the common areas (say a stairwell), if the policies are fragmented, whose insurer pays. The coordination between insurers would be a nightmare.
• Can you be sure that all common parts are fully covered? Is your policy covering 1/10th of the garden etc.

How Much To Insure For?

Insuring a tenement or development isn’t a case of putting a finger in the air and saying, “let’s insure it for about £ xxx,xxx, that seems about right!” You need to get a “Reinstatement Cost Assessment” carried out periodically by an appropriately (RICS) qualified surveyor. That periodicity used to be every five years, but has recently changed to once every three years. This assessment will cost you some money, so make sure that you, the owners, or your factor, if they arrange it on your behalf, commission a really competent surveyor to do it. You don’t want to be paying £ thousands for a “drive by” assessment (it happens).

The topic of how this converts into the “Building Sum Insured” is a bit outside the scope of this post but in essence the Reinstatement Cost Assessment is passed to the insurer (normally via an insurance broker), it then becomes the “Declared Value” which is then adusted throughout the period of insurance to take into account inflation, that adjusted figure is the “Building Sum Insured”.

And every three years these figures are reset with a new “Building Sum Insured”. Don’t get me started on whether VAT should or should not be included in the Building Sum Insured! Maybe I’ll try to write an article about that sometime.

Must We Have It?

In Scotland, having appropriate buildings insurance for your part of a tenement or flatted development is not just a good idea—it is a legal duty.

The Tenements (Scotland) Act 2004 places a statutory duty on every owner in a tenement to ensure their property, and their share of the common parts, is adequately insured. And just to be clear, this duty applies even if you have paid off your mortgage and have a “relaxed” attitude to potential loss!

In most modern developments, the Title Deeds (or Deed of Conditions) will explicitly require owners to participate in a single, common insurance policy arranged on behalf of the block. If your deeds do require a common policy, you are legally bound to follow that requirement.

If you have a mortgage, your lender will mandate that you have buildings insurance to protect their investment. For flats, most lenders will insist on cover that specifically includes the reinstatement value of the building’s common parts, normally achieved only through a common block policy.

Who Organises It?

The arrangement of common insurance is one of the Factor’s core duties, but it’s important to know what they are responsible for (not least because sometimes they only have a loose grasp of the requirements about involving you and disclosing to you, the owners).

If your building has a registered Property Factor, they will typically take on the role of arranging and administering the common policy. This involves sourcing quotes, dealing with the insurance broker, paying the premium, collecting contributions from owners, and managing claims.

Under the Property Factors (Scotland) Act 2011 Code of Conduct, your Factor has specific obligations regarding insurance. Specifically, the factor must provide an annual insurance statement to each homeowner (or within 3 months following a change in insurance provider) with clear information demonstrating:

• the basis upon which your share of the insurance premium is calculated,
• the sum insured,
• the premium paid,
• the main elements of insurance cover provided by the policy and any excesses which apply,
• the name of the company providing insurance cover, and
• any other terms of the policy.

The factor must also provide owners with a written statement of any commission, administration fee, rebate, or other benefit the factor receives from the insurer or broker. You’ll see factors marketing statements saying that they charge no commission on block insurance – this isn’t enough to satisfy the requirement. “Rebates and any other benefits received from the insurer or broker” covers a multitude of potential sins!

What About Self-Factored Properties?

If your block is self-factored (the owners manage the building themselves), the duty to arrange and maintain the common insurance policy falls collectively to the owners. Owners must make a binding decision, usually by a majority vote under the Tenement Management Scheme, to choose a policy and one owner or am agent to administer it.

How Are Costs Apportioned?

Understanding how the total premium is split among the owners is critical, as this is often where disputes arise either because your Factors aren’t following the rules or because owners feel that the apportionments as laid out in the rules aren’t fair.

As in so many aspects on common property, the Title Deeds govern. The cost of the common insurance premium must first and foremost be shared according to the rules set out in your Title Deeds. This might be based on floor area, rateable value, or simply equal shares.

There is however, a fallback position if Title Deeds are silent or unclear. In this case the default rules of the Tenement Management Scheme (TMS) apply. Under the TMS, most costs (including insurance) are shared equally between all flats. However, an important exception exists: if the floor area of the largest flat is more than 1.5 times the floor area of the smallest flat, the costs must be shared proportionally by floor area.

The Usual Recourse To Law

What if you are unhappy with how your factor is dealing with common building insurance? The answer is the usual – you need to follow the factor’s complaints procedure, which should be laid out in their Written Statement of Services, and if that fails to provide satisfaction, then you can refer the matter to the First Tier Tribunal.

Useful Links

• Code of Conduct for Property Factors
• Tenements (Scotland) Act 2004
• Under One Roof: Insurance through your factor

It’s a big cost, it’s a big topic.