Lexsure e-ROT

Defective Lease · Report on Title scenario

The lease makes each flat insure its own part of the building

Because a building cannot be rebuilt in pieces. If the lease puts the insuring obligation on each tenant — your flat including, if you are upstairs, the roof — then whether there is enough money to reinstate after a fire depends on every other owner having insured adequately and kept their policy valid. That is outside your control, and it is the whole of the problem.

From the e-ROT archive

This scenario is drawn from Report on Title material dealing with this specific circumstance.

Lexsure master Report on Title paragraph: Individual Tenants Insure - CBI Policy in Place · See the wording

Which describes you?

I’ve already bought the property There has been damage and the insurance arrangements are not working. Check what this could mean →WhenIBought.com I’m a conveyancer I need Report on Title wording for this situation. View professional options →

Why it is not technically a defect, and is still a problem

A lease that obliges each tenant to insure their own demised part is doing something the law allows. The Lexsure wording below is careful about this: it is not a defect in the lease, it is an arrangement with practical difficulties.

The difficulty is structural rather than legal. You can insure impeccably and still be unable to rebuild, because your flat cannot be reinstated in isolation from the building it is part of. Your protection depends on strangers.

Already bought, and the insurance arrangements have failed?

If there has been damage and the cover does not reach it, what was reported to you about the lease's insurance provisions is where the question starts.

Find out what should have been explained → WhenIBought.com

The practical consequences you can measure

<b>Can you even get cover?</b> An increasing number of insurers are reluctant to insure an individual flat within a larger building. Before you exchange, get a quote for exactly what the lease obliges you to insure.

<b>Will a lender lend?</b> The arrangement does not automatically make a property unmortgageable, but it is increasingly treated as unsatisfactory, and the direction of travel among lenders is not favourable.

<b>Will the next buyer accept it?</b> Marketability is the slow version of the same problem. What a lender tolerates today may be refused when you sell.

The two ways out

<b>A deed of variation</b> obliging the landlord to insure the whole building under one block policy. This is the real fix — one policy, one party responsible — and it is usually cheaper in total than several separate policies.

<b>Contingent buildings insurance.</b> A one-off policy, running with the property, that pays out where the building is destroyed and full reinstatement cannot be funded because another tenant failed to insure or invalidated their cover. It is a sensible answer to the specific risk and it is still insurance rather than a cure; read the covered losses and the exclusions.

Whichever route, the most useful thing you can do after completion is talk to the other owners about a single block policy. The arrangement persists mostly because nobody has ever sat down and changed it.

From the e-ROT archive

Report on Title paragraph

Individual Tenants Insure - CBI Policy in Place

Master precedent Lexsure e-ROTScope Full insuring basisWord count 208Status Current master paragraph

The Lease is let on a full insuring basis, that is to say that each tenant is responsible for insuring that part of the building which is Leased to him, both internally and externally. In the case of an upper flat, this usually includes the roof, and in the case of ground floor premises, this usually includes the foundations. It is clearly better to have the Landlord insuring under one block building insurance policy. Whilst the fact that the Lease imposes the obligation on the Tenant it is not a defect in the Lease but it does present a number of practical difficulties. First, whilst you may be insuring your property adequately with a reputable company and would be paid out in the event of the property being destroyed there is no guarantee that the other tenant/s would necessarily be insuring their property. In the event that the other flat/s in the building are not insured or indeed if their insurance, for whatever reason, is invalidated then your flat will not be able to be reinstated in isolation. In other words, the question of whether or not you will have sufficient insurance to rebuild the whole building is very much dependent on the other tenant/s in the building. …

Master precedent wording. This is current Lexsure Report on Title material, shown here in extract and reproduced exactly. It is professional precedent wording addressed by a conveyancer to a client, and is not advice about any particular property.

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