In an important ruling for landlords, tenants and the insurance industry, the Upper Tribunal (UT) has found that the freeholders of a block of flats reasonably insured the premises against terrorism risks and were entitled to recover premiums from tenants by way of the service charge.
Tenants of the block and their management company had objected to paying the premiums on the basis that there was no evidence that the building was vulnerable to acts of terrorism. They also pointed out that the relevant leases conferred no express power on the freeholders to arrange terrorism insurance.
Those arguments prevailed before the Leasehold Valuation Tribunal (LVT). However, in allowing the freeholders’ appeal, the UT noted that they were obliged by the terms of the leases to insure against the risk of ‘explosion’. That, as a matter of ordinary English, implied an obligation to also insure against acts of terrorism.
The decision to insure against terrorism risks was in any event a reasonable exercise of the freeholders’ discretion in that it accorded with the recommendations of the Council of Mortgage Lenders and the Royal Institution of Chartered Surveyors. In those circumstances, the LVT’s decision was ‘insupportable’.
When taking out a mortgage to purchase a new property, it is always vital to check what the lender requires for any buildings insurance policy.
Insurance against acts of terrorism is increasingly becoming a standard requirement for lenders along with flood insurance, but many insurers will not insure on these terms or at a very high premium. You must therefore check your proposed insurance policy alongside the lender’s requirements, and if you have any questions we are happy to help.
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