19 August 2022 by

Insurance: more than just a policy…

Insurance: more than just a policy…

The costs associated with the administration of a property development are significant.  As a result, landlords usually ensure the lease includes appropriate insurance provisions.  These aim to financially safeguard the development, the tenants, and the landlord itself from various potential risks.

The usual insured risks include, among other things:

  • Fire
  • Storm
  • Flood
  • Terrorism
  • Lightning
  • Subsidence
  • Legal fees
  • Employers’ liability
  • Third-party liability
  • Loss of rent
  • Strikes
  • Civil commotion
  • Engineering Insurance
  • Engineering inspection
  • Communal contents
  • Fidelity cover
  • Malicious damage
  • Bursting of overflowing of water tanks or pipes

Whose Obligation to Insure?

Which party is required to obtain insurance will depend on the terms of the lease and the intentions of the original landlord and tenant.  However, it is common for the landlord to retain the insuring obligations because the landlord will usually want to ensure that:


  • the premises are adequately insured;
  • the level of insurance is high enough to protect its interests and will fully cover the cost of rebuilding the development;
  • the insurance is through a reputable insurer;
  • it can take advantage of the high levels of commission or discounts associated with purchasing bulk insurance.

The Policy Holder

The lease may dictate in whose name the insurance policy is to be placed.  It is vital a landlord observes all requirements under the lease, as failure to comply will result in a breach of the lease and may render the insurance policy void.  This may further result in the landlord being unable to recover the insurance costs from its tenants.

In the case of Green v 108 Archway Road Management Co Ltd [2012] UKUT 245 (LC), the Upper Tribunal held that the landlord was unable to recover costs associated with the insuring of the development, as the landlord failed to place the insurance in the joint names of itself and the tenant.

The Insurance Provider

A lease may specify a category of insurer for the insurance of the development and may specify that the insurance is to be purchased through “an insurance office of repute” or at Lloyds.

The Cost of Cover 

Other than what may be specified in the lease, there is no limit in law on the value of insurance cover a landlord may purchase. Additionally, there is no requirement for a landlord to shop around and purchase the cheapest insurance policy.

Reasonably Incurred

An insurance premium payable by a tenant falls under the definition of a ‘service charge’ set out in section 18 of the Landlord and Tenant Act 1985.  This means it is subject to the test found in section 19(1)(a) of the Landlord and Tenant Act 1985, which states that a service charge is only payable to the extent that it is reasonably incurred.  To establish whether any item of service charge has been reasonably incurred involves consideration of:

  • whether the decision to incur the cost was reasonable;
  • whether the service charge is reasonable in amount.

If you have any questions about the issues covered in this article, please contact Hansel Ariburun in our Real Estate Disputes team.


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