Three claims landlords of leasehold flats may not be covered for without specialist insurance

Last May, the previous Conservative Government rushed through the Leasehold and Freehold Reform Act 2024, which sets out numerous changes to make the system fairer, easier and cheaper for leaseholders to navigate.

However, only two of these changes have come into force so far:

• 31^st January 2025 - The two-year ownership rule was removed, meaning leaseholders no longer have to wait two years after completing on a purchase to extend their lease or buy the freehold.
• 3^rd March 2025 – The right to manage (RTM) was implemented, so leaseholders of flats can now set up their own management company and simply serve notice on the freeholder. The requirement for them to cover the freeholder’s legal fees was removed.

Two consultations have also been held this year, on buildings insurance costs and service charges, and the feedback on both is currently being analysed.

Buildings insurance for landlords

If you let a leasehold property, buildings insurance is likely to be included within the cost of your service charge. Because you and the other leaseholders only own a portion of the building, the management company usually takes out a policy for the whole premises and then apportions the cost based on the size of each flat.

The reason for the recent consultation was to address concerns that some leaseholders are being overcharged for buildings insurance when it includes the cost of excessive commissions given to landlords/freeholders or agents for arranging and managing the insurance.

The Government has now decided that ‘hidden’ commissions for simply arranging insurance will be phased out and the charging of ‘permitted fees’ will be introduced, but only for certain activities, including collecting premiums and handling claims.

Three key things to check with buildings insurance

While buildings insurance is arranged on your behalf, that doesn’t mean you can rely on it to cover you for all the risks, so you must check what it includes. Three key things to ask about:

1. Third-party liability. If a neighbouring property causes damage to yours – e.g. a burst pipe in the flat above resulting in water damage to your property – will the buildings insurance pay out for repairs? Some policies don’t include this cover.
2. Is damage to permanent fixtures and fittings, such as kitchen units, included?
3. If the property becomes uninhabitable as a consequence of an insured event, will the policy pay out for the cost of finding alternative accommodation for your tenants?

What other areas are not included in these policies?

It’s also important to note that the buildings policy is not landlord-specific, so it is well worth considering taking out additional specialist landlord insurance for things such as:

• Liability – To protect you from personal injury claims made by tenants, visitors to the property or contractors and service providers carrying out work.
• Contents – To cover the items you provide for your tenants, such as furnishings and kitchen equipment. (Note that this only covers your contents, so your tenants will need to take out insurance for their own possessions.)
• Legal expenses – To cover the legal costs of things like evicting a tenant or taking them to court for another reason.

All insurance policies have terms, conditions and cover limits. If you would like to discuss any aspect of your landlord insurance cover and find a policy bespoke for your individual needs, our team of experts is always here to help. Contact us either via our online form, or by calling 01903 890044.

Further changes under the Leasehold and Freehold Reform Act may be delayed

Although the current government is keen to move ahead with implementing more of the new rules - which include increasing standard lease extension terms to 990 years, removing the obligation to pay ‘marriage value’ when extending a lease, and requiring managing freeholders to belong to a redress scheme – a legal challenge from freeholders is hampering progress.

Major freeholders, including the Cadogan Group and John Lyon’s charity, have brought a case arguing that many of the changes in the Act violate their rights under the European Convention of Human Rights. Of particular concern is the removal of the requirement for leaseholders to pay marriage value, as it will have a huge impact on the wealth of freeholders, especially charities.

If the claimants were to win in court, further reforms could be delayed while the Government worked on amending parts of the Act.

You can read more specific information on the Act, including the latest developments, on the parliament website.

If you are a current landlord with any of the agencies in LRG, an insurance quote is ready and waiting for you in your online landlord account. No fuss or forms to fill out!

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