In the context of a residential development, "critically important" isn't an exaggeration—it is the foundation of the entire community's financial security.

When insurance is handled incorrectly for a block of flats or a managed estate, the consequences aren't just administrative; they can be financially devastating for the individual leaseholders and legally precarious for the directors of the management company.

Here is a look at the "hidden" reasons why getting the cover right is so vital.

1. The Danger of "The Average Clause"

One of the most critical reasons for professional valuation and appropriate cover is to avoid underinsurance.

• The Risk: If a building is insured for £1 million but the actual reinstatement cost is £2 million, you are 50% underinsured.

• The Consequence: If a smaller claim occurs (e.g., £100,000 in fire damage), the insurer can apply the "Average Clause" and only pay out 50% of that claim (£50,000), leaving the residents to find the remaining £50,000 via a sudden, heavy service charge.

2. Protecting the Directors (D&O Insurance)

For many developments run by a Resident Management Company (RMC) or a Right to Manage (RTM) company, the directors are often residents volunteering their time.

• Without Directors & Officers (D&O) Liability insurance, these individuals could be personally liable for legal costs and damages if they are accused of a "wrongful act," such as failing to maintain the building correctly or breaching a lease.

3. Mortgageability and Resale Value

Appropriate insurance isn't just for when things go wrong; it’s essential for the building's daily economy.

• Lender Requirements: Banks will generally not provide mortgages for flats unless there is evidence of a valid, comprehensive block insurance policy in place.

• The Paper Trail: If the insurance is found to be inadequate during the "conveyancing" (selling) process, it can cause property sales to collapse, affecting every resident's property value.

Insurance, Safety and Security

Insurance for You and Your Property

There are three main areas of insurance that our clients will need to consider: buildings insurance, terrorism insurance, and directors and officers insurance.

A robust buildings insurance policy is essential as it protects you from incurring avoidable costs from any accidental damage that your property may experience. Leasehold property generally requires a communal building insurance policy that will typically include third party or public liability cover. It will encompass the main structures, walls, roofs, doors, pipes and services, and the contents of the communal areas. Individual leaseholders will usually be responsible for insuring the contents of their own flats or apartments. Where estates or private roads are concerned, there is usually a requirement to insure communal entrance gates, boundary walls and other external areas. We will make sure that insurance is arranged in line with the responsibilities set out in the lease or deeds of covenant, and that reinstatement costs assessments are regularly undertaken.

Although terrorism cover is not required by some older leases, we recommend that it is put in place at all our developments. As standard, building insurance policies don’t cover damage caused by any terrorist related activity (not simply an act of terrorism), we always advise our clients to put a policy in place.

A volunteer director or officer of a residents management company and someone running a large commercial business are equal in the eyes of the law. Directors and officers liability insurance is crucial in protecting you from being sued personally, and we thoroughly recommend that all our clients secure a good policy.

Our strong relationships with a number of specialist block management insurance brokers mean we can secure competitive quotes on policies. As part of our service, we are happy to obtain these on our clients’ behalf and to facilitate the payment process once a decision has been made.

We actively work to minimise insurance claims by informing residents how they can check for potential water leaks and keep their property safe. Whether it be a small case of water damage or a more serious incident, we will help identify the cause of the problem and facilitate communication between leaseholders, providing a trusted and comprehensive service in occasionally challenging times. When a claim does need to be made, we will provide the necessary information and contacts at the insurance company so the claim can be processed, and the damage rectified as swiftly as possible.