Unable to obtain flood insurance for your block? Paul Robertson has a solution.
Last month I explored the problems experienced by blocks of flats when flood insurance becomes unobtainable. This is not just an issue for the flats on lower floors that suffer the damage but one that affects all the leaseholders in the block.
If your block is unable to obtain insurance that includes flood cover, it will become difficult – if not impossible – to obtain a mortgage, regardless of which floor you live on. In addition, as a leaseholder, you may have to bear a share of the uninsured loss as an item on the service charge each and every time the block floods. Ultimately the value of your block will plummet, potentially leaving you with the prospect of negative equity in your mortgage.
At this year’s ARMA conference I was delighted to announce the launch of a new and ground breaking solution my company has brought to market in conjunction with Cassandra Zanelli of PM Legal Services. Jointly we have found a way to modify the leases of blocks of four or more flats to enable the insurable interest to be moved to the lessees. This follows the strata living approach in Scottish tenements and means that blocks in England and Wales can be ceded into the government-backed Flood Re scheme.
We have made it easy for all the lessees in a block to sign up. Once they have read the information pack and signed the pre-agreement then a deed of variation will be issued to each resident. All of them will then be issued with an individual policy to cover the buildings of their own flat and the block will be protected by a master policy that covers the common parts and includes all the usual liability covers, with the option for all risks terrorism insurance. The simple analogy is that we have deconstructed a block of flats policy and – just like a cheesecake on that well known TV show – we have reconstructed it in a different form. All the constituent parts are still there, they are just in a different order.
I will not pretend that this is the simplest of solutions because it’s not. It has taken time but we are proud to have worked out how to provide flat owners with a solution to a serious problem, including how to manage the complex FCA rules and European consumer legislation that could have acted as a barrier to us bringing this solution to market.
Ultimately if all the lessees and the freeholder consent, then flood cover can be made available by this new leasehold amendment and insurance scheme. Because a large element of the flood exposure is being ceded to the government backed Flood Re scheme, it becomes viable for the insurer as well as being affordable for the lessee.
There are still limitations in the statutory instrument behind the Water Act which define the Flood Re scheme, meaning that not all blocks are eligible, such as those built or converted after 2008. However this solution will cater for a large number of blocks currently unable to obtain flood cover at an affordable price or with an appropriate excess, bringing security and financial stability to affected lessees.
Reading this you may be wondering how difficult it will be to obtain a consensus in order to adopt this solution. Normally getting all residents to agree on an action is difficult and I myself would be among the naysayers, but the dynamics here are very different. Given the consequences of not being able to obtain cover, I hope common sense will prevail and otherwise uninsurable blocks will seriously consider opting for this cost effective solution. And if not, then Cassandra and I have some other alternatives.
If you live in or manage a block that cannot obtain insurance including cover for flood then visit our website at www.1stsureflats.com/flood as we may be able to help.
Paul Robertson is MD of Midway Insurance and 1st Sure Flats – www.1stsureflats.com Tel: 0345 370 2842.
