Common building insurance

You are obliged by law to have adequate common insurance. This is to cover your share of the costs of major and expensive damage to your building. You need to insure your building for a reinstatement value that could be more than the sale value. Many tenement and apartment blocks carry a block insurance policy which all owners pay for jointly.

Why do we need insurance?

If you do not have insurance, you will need to pay the cost of any damage to your property from your own funds, even if it is not your fault.

If there is a fire, then all flat owners in a tenement block will be required to share the cost of rebuilding. The Fire Protection Association has claimed the cost of a tenement fire is over £370,000. You cannot rebuild just part of a block of flats so if one owner is uninsured, or underinsured, there are major problems for every owner. 

The uninsured owner could lose their home. The value of their flat following a fire could be less than they paid for it and they would still have obligations to pay for the fire damage to the common property.  Other owners could be left living in temporary accommodation and paying rent as well as mortgage for months if not years.

Common insurance – legal obligations

Decisions about common insurance are normally majority decisions (but check your Title Deeds).

It is a legal obligation under the Tenements Act for all flat owners to carry common insurance.  (The only exception to this would be where it proves impossible to insure your building.)

If you have a mortgage, its terms will require you to carry adequate insurance.

If you don't have a block insurance, you can be required, on 14 days notice,  to show your co-owners evidence that you have sufficient common buildings insurance.

What if someone doesn't have common insurance?

If owners can't show you proof that they have adequate common insurance cover, you can take legal action to ask the Sheriff to order your co-owner to take out insurance.  

Legal reference

s18 Tenements (Scotland) Act 2004

More information

Taking Legal Action

What types of insurance are there?

You can choose between two different ways of insuring your building:

  • Block or Common Insurance – this generally refers to building insurance which covers every owner in a tenement or block of flats or estate. It sometimes also refers to a top up policy to your own individual buildings insurance.
  • Individual building insurance - this must also cover the common areas of your building.

These are not the same as Contents Insurance – which covers your own personal possessions and furniture - or Landlords Insurance.  Ideally you will have both buildings and contents insurance.

Should we get a block insurance policy?

Advantages of a block insurance policy:

  • It is the best way to make sure that every property has enough cover and that all premiums are paid so the policy continues to be valid.
  • There may be legal requirement through your Title Deeds
  • A claim for damage to your common property will be a single claim with a single excess.  If each owner has their own policy covering the common areas, each will have to pay an excess.
  • Often cheaper

Disadvantages of a block insurance policy

  • If one owner doesn’t pay, other owners may need to cover their share of the premium or take action against them.  But at least you know your building is adequately covered.

Changing a block policy

 Decisions about insurance are common decisions to be agreed by a majority of owners.

If you already have buildings insurance tied to your mortgage, contact your insurer – you will almost definitely get your premiums reduced, perhaps by 50%.

How much cover do you need?

Check your Title Deeds to see what they say about your common insurance obligations.

How to value your building for insurance?

You can get a rough idea of rebuilding costs by using the Building Cost Information Service.  This is a very basic service which does not cover any properties built before 1946 or any listed property.  It’s a call for action if the reinstatement value given there is substantially different from what you are currently insured for.

Ideally you should have a Building Reinstatement Valuation to ascertain the costs of completely rebuilding your property. These valuations must be carried out by a RICS qualified surveyor and are recommended every 3-5 years as the costs of building materials and necessary expertise change.

This valuation can be updated annually using the BCIS Rebuilding Cost Index.   The cost of this survey could be around £50 per owner but this will depend on the size and number of owners in your building. (The cost index for Oct 2015, showed rebuilding costs had increased by 4.5% over the previous year, more than the rate of inflation).

What if we are under or over-insured?

If you need to partially repair or rebuild, and you are under-insured, your claim will be averaged.  This means that you will only get a fraction of the insurance claim.  If you have insured your building for £1M but your reinstatement value should have been £1.5M, you will only get paid two thirds of your claim. There is no benefit in being over-insured, you can still only claim for what you’ve actually paid after exclusions.

What type of problems can and can't you claim for?

Your premium will be affected  (partly) by the excess you choose. The excess is the amount you pay yourselves before your insurance comes in to play. A high excess will lead to lower premiums but you may have to cover a number of small problems from your own funds.

What does buildings insurance cover?

A typical All Risks policy will give you cover over

  • fire, lightning, explosion and smoke
  • storm damage, flood, escape of water
  • theft &  attempted theft, malicious damage
  • impact and accidental damage
  • subsidence, ground heave & landslip
  • third party liability / Property Owners Liability

It will typically exclude damage caused by:

  • frost
  • wear and tear, gradual deterioration
  • latent defects
  • problems caused by major structural alterations
  • defective  design or workmanship, use of defective materials
  • asbestos

So if you don’t keep your property repaired, or use poor trades firms, your insurance may not cover you.

You may need to opt in to some these types of cover and check any specific exclusions:

  • Material Damage
  • Escape of  Utilities
  • Breakage & Collapse of Aerials  
  • Removal of Trees and  Branches that are a threat to life
  • Carpets of Common Parts
  • Fly Tipping Removal Costs
  • Damage to Fixed Glass and Sanitary Wear
  • Alternative accommodation

Lift insurance

You may also be able to get specific cover for your lift.

Insurance through your property factor

A property factor will generally arrange common insurance for you. If they do so, they must abide by the Code of Practice and may also need to be registered with the Financial Conduct Authority (FCA).

Some property managers may have a single policy covering a number of estates, tenement and apartment blocks.  This can provide better value overall and it can be good news for those of you whose blocks are subject to frequent claims.

Your property manager should tell you what commission they take on purchasing insurance on your behalf.  The level of commission should, under FCA rules, not affect their choice of insurer.  The property manager can be required to carry out the collection of premiums and claims negotiations in exchange for the commission they earn.

Commission rates on building insurance can be around 25%.

Why have premiums been increasing?

A number of reasons could lead to an increase in premiums:

  • Insurance Premium Tax changes
  • Building Cost Index increases due to inflation, changes in building regulations etc
  • Claims history

Claiming

Many insurers use claims consultants to handle cases.  If you have difficulty over a claim, you can also use a claims consultant but you will be charged a fee which is likely to be a percentage of the final claim.  If you have several policies covering your block, a claims consultant may help with negotiations with all the owners’ insurance companies.