Buildings Insurance and Your Service Charge: What You're Really Paying For

Having lived in a flat for many years, I thought a brief overview of buildings insurance for flats, as I understand it, might be useful. I must admit my own encounter with freeholder buildings insurance was actually a positive experience, which I'll mention later. So these are just my views on buildings insurance for leasehold flats, plus information I've sourced. I am in no way a legal expert.

What Is a Leasehold Flat?

When you buy a leasehold flat, what you're really buying is the right to live there for a set number of years, while the freeholder or landlord owns the building and the land.

What you own:

• Inside the flat: you generally own everything inside your four walls, including the floorboards, plaster and standard fixtures.
• Outside the flat: you do not own the roof, the outside walls, or the land.
• Shared spaces: hallways, stairs and gardens belong to the freeholder, but you have the right to use them.

What Is Buildings Insurance on a Leasehold Flat?

Freeholder buildings insurance on a leasehold flat is a policy that covers the physical structure and shared areas owned by the freeholder or landlord against major damage. They arrange block cover for the entire building and pass the cost on to you and the other leaseholders through the annual service charge.

Every insurance policy has an "excess" (the initial amount you must pay toward a claim). Even where the freeholder holds the policy, the lease usually states that the leaseholder whose flat caused the damage must pay that excess. Importantly, you have a legal right to view the policy, and you're often given a copy or access to a leaseholder portal when you buy the leasehold.

What Does Buildings Insurance Cover?

This is just a general guide, as freeholder buildings insurance policies vary. You need to read the actual policy for your property to know exactly what's covered and excluded.

What's usually covered:

• The structure: the roof, external brick walls, shared foundations, windows and communal doors.
• Shared and communal areas: hallways, stairwells, lifts and shared entry systems.
• Outside: garages, communal outbuildings and gardens.
• Standard fixtures: permanent items built into the flats, like bathroom toilets, sinks, fitted kitchen units, and structural pipes and cables.

What's often NOT covered:

• Your belongings (contents): furniture, clothes, laptops, TVs and removable items are entirely your responsibility. You must buy your own contents insurance to protect them.
• Carpets: even though they're on the floor, carpets are legally viewed as removable contents and are excluded from the freeholder's structural cover.
• Wear and tear: gradual deterioration over time, like an old roof leaking or a slow damp problem, won't be paid out.
• Certain internal appliances: some policies exclude individual boilers, radiators or household appliances.

What events are usually covered:

• Fire, smoke and explosions.
• Storms, floods and natural disasters.
• Burst or frozen pipes, and the resulting water damage to the building fabric.
• Subsidence, when the ground under the building sinks or shifts.
• Vandalism, break-ins or falling trees.

What Insurance Do I Need for My Leasehold Flat?

So do you need buildings insurance for a leasehold flat? In nearly all leasehold arrangements, the freeholder or the management company is legally responsible for insuring the entire building structure, and this should be detailed in your lease. In some rare cases, the lease might state that each flat owner must arrange their own buildings insurance. And if you and the other flat owners have bought the freehold together, you as a collective are responsible for arranging the block's buildings policy.

The service charge insurance normally covers the structure, but it does not cover the contents of your flat. You'd be well advised to arrange a separate contents insurance policy to cover your personal possessions, such as your furniture, electronics, clothes, carpets, freestanding appliances, and internal fixtures and fittings (depending on the exact terms of the main building policy).

My claim: I actually have experience of making a claim. Some years ago I had a small fire in my kitchen that caused extensive smoke damage. I notified the managing agent and contacted both the buildings insurer and my contents insurer. They arranged a site visit to agree who was liable for what, and the whole thing was handled really efficiently.

Who Arranges Buildings Insurance, Freeholder or Leaseholder?

The buildings insurance is arranged by the freeholder or a management company, who buys a single block policy to cover the entire structure. They then pass the cost of the premium on to leaseholders through the annual service charge. The exact rules depend on the specific terms written into your lease. The main exception is where leaseholders own a share of the freehold or run a residents' management company, in which case they arrange the insurance collectively.

Why Is Freeholder Buildings Insurance Often So Expensive?

Many factors influence the premium. The age, condition, claims history, having lifts, and even the height of the building all affect it. Public liability is higher due to the footfall compared to a single house, and there's far greater shared risk with so many bathrooms, kitchens and residents, which increases the chance of a claim. Risk is the main factor in any premium. Changes in regulations can also have a sudden impact, as we saw after the Grenfell fire.

But here's the real problem. Because the cost is simply passed on to you, there's no incentive for the freeholder or managing agent to shop around for a better deal. And it has been common practice for them to receive a large kickback, often called a "referral" or "administration" fee, from the insurer. Official figures have shown these hidden fees surged by nearly fifty percent. The government is now implementing secondary legislation under the Leasehold and Freehold Reform Act 2024 to ban these hidden commissions and replace them with transparent, capped permitted fees.

Unhappy With Your Buildings Insurance? What You Can Do

The core issue is that the freeholder or agent arranges the master policy and passes the cost to you, so they have no incentive to shop around, especially if they're receiving a sizable referral fee. One thing to remember, though, is that cheaper isn't always better.

The good news is you have a legal right to know if your freeholder or managing agent is taking a commission on your buildings insurance.

Under the Financial Conduct Authority (FCA) transparency rules, leaseholders are legally treated as the "customer". If you request insurance details, the freeholder or their broker must by law reveal the exact cash amount of any commission or financial incentive paid to a third party such as the freeholder or managing agent, and hand over a detailed breakdown of the total premium and pricing. The Leasehold and Freehold Reform Act 2024 tightens this further: freeholders can no longer wrap vague commissions into your premium, and may only charge a transparent "permitted fee" for defined work they actually perform, like managing a claim or collecting premiums, itemised separately so you can scrutinise it.

If you want to know whether your freeholder is making commission from your policy, and how much, send a formal email or, better still, a recorded letter to your managing agent or freeholder requesting this information. If they don't respond, or you're unhappy with the figures and they won't address it, you can take it further. If the freeholder or managing agent can't justify the cost and refuses to look for a cheaper policy, you can take them to the First-tier Tribunal (Property Chamber), or the Leasehold Valuation Tribunal if you're in Wales.

Don't refuse to pay the bill, but pay in writing "under protest", stating: "I am paying this insurance charge under protest, and I reserve the right to challenge its reasonableness at a tribunal." And speak to your neighbours, because if you team up with other leaseholders you can mount a joint challenge and share the workload and any costs.

Do I Need a Solicitor?

The short answer is no, you don't need a solicitor. The whole process of challenging service charges and freeholder buildings insurance fees is designed for people to do themselves, right up to and including the First-tier Tribunal. The main thing that stops people is getting all the relevant information and paperwork together in one place. That's exactly where Service Charge Rescue is useful, because everything you need is in one place. If your case is particularly complex, it's still advisable to seek advice from a specialist legal expert. For more on the DIY route versus using a solicitor, see our guide.

Frequently Asked Questions

Does my service charge include buildings insurance?

This will be stated in your lease; in most cases concerning flats the freeholder or agent organises it for the whole block or blocks & you pay your share via the service charge. You do have the legal right to see the policy & the cost. Some possible exceptions: leasehold houses, where the lease terms state it, or under Right to Manage or Share of Freehold.

Why is the buildings insurance on my flat so expensive?

Costs are higher due to the multiplier issue. The policy covers more separate properties causing more footfall, more residents, more kitchens & bathrooms creating more risk. Many have flat roofs, lifts, cladding & communal areas which may add cost. If you think the cost is too high it is worth looking into, as part of the cost can be due to hidden commission paid to the freeholder or agent.

What is insurance commission and why does it matter?

Insurance commission is a part of the premium that is paid back to the freeholder, managing agent or broker for arranging the policy. Obviously organising a policy involves some work, so a commission compensates for this. The problem is when the commission is high & not disclosed, whilst you are all paying for it.

Can I see what the buildings insurance actually costs?

Yes, you do have the legal right to ask, in writing, for a summary of the insurance cover and to inspect the policy and supporting paperwork. This is a legal right provided in the Landlord and Tenant Act 1985. If they refuse or the figures look wrong then you have grounds to question the charge.

Can I challenge my buildings insurance charge if I think it's too high?

Yes, if you are unhappy with the figures or they refuse access to your request for information. You can challenge this at the First-tier Tribunal which deals with leasehold issues. It is not unusual for people to represent themselves at the tribunal. The government are also looking to increase insurance commission transparency under the Leasehold and Freehold Reform Act.

Can I arrange my own buildings insurance instead?

Most leases entitle the freeholder or their agent to insure the whole building. What you should do is check the policy to see what is covered and ask for the commission to be disclosed, as is your legal right. If you are unhappy with the policy or costs then challenge them. Note: you are responsible for providing your own contents insurance.