Does Service Charge Cover Building Insurance?
What service charges typically include, and what leaseholders need to sort out themselves.
In most cases, yes. Building insurance is typically arranged by the freeholder or management company and the cost is recovered through the service charge. But this isn’t universal, and assuming it’s included without checking can leave you without cover you thought you had. Here’s how it works and what to look out for.
At a glance
- Building insurance is usually arranged by the freeholder and included in the service charge, but not always.
- It covers the structure of the building and communal areas, not your personal belongings or any fixtures you’ve added.
- Service charges vary, so always check your lease agreement to confirm what’s included.
- Contents insurance is always your responsibility as a leaseholder, regardless of what the service charge covers.
What is a service charge?
A service charge is a fee leaseholders pay to the freeholder or managing agent to cover the upkeep and maintenance of the building’s shared areas and facilities. Depending on the property and the terms of your lease, this can include cleaning communal areas, maintaining lifts, repairing the roof, and in many cases, buildings insurance.
The amount varies from property to property and should be set out clearly in your lease agreement. Freeholders may also hold some of this money in a sinking fund, a reserve set aside for major works such as structural repairs or replacing a lift, rather than raising a large one-off charge when something goes wrong.
How does building insurance fit in?
Building insurance covers the structure of the building, including the walls, roof, and permanent fixtures. If there’s a fire, flood, or storm, this policy covers the cost of repairing the building itself.
For leasehold flats, the freeholder or management company typically arranges building insurance and recovers the cost through the service charge. This means you’re contributing to the premium as part of your regular payments, even if it isn’t itemised separately on your statement.
What the freeholder’s building insurance policy typically covers:
- The structure of the building, including walls, roof, and foundations
- Communal areas such as stairways, corridors, and shared gardens
- Repairs resulting from insured events such as fire, flooding, or storm damage
What it doesn’t cover:
- Your personal belongings
- Internal fixtures and fittings you’ve added to your flat
- Accidental damage within your flat
- Any improvements you’ve made to the interior
For everything inside your flat that belongs to you, contents insurance is your responsibility to arrange.
What if buildings insurance isn’t included?
Not all service charges include buildings insurance, so it’s important to check rather than assume.
If it’s not included, you’ll need to arrange cover yourself. Before doing so, check your lease agreement, as some leasehold agreements specify that only the freeholder can arrange buildings insurance for the building. If that’s the case, raise it with your freeholder or managing agent directly.
If your property is mortgaged, your lender will also have requirements around building insurance. Most mortgage lenders require building insurance to be in place as a condition of the loan, so check what your lender specifies before arranging a policy independently.
How can you check what your service charge covers?
If you’re unsure whether buildings insurance is included in your service charge, here’s where to start:
- Review your lease agreement. This is the primary document that sets out what the freeholder is responsible for and what your service charge covers. Buildings insurance, if included, should be referenced here.
- Contact your management company or freeholder. Ask for a breakdown of what your service charge includes and request a summary of the buildings insurance policy if you’re being charged for it.
- Request proof of the policy. Under FCA regulations, you’re entitled to see evidence of the buildings insurance you’re contributing to through your service charge. Don’t hesitate to ask for it.
- Check your annual service charge statement. Many management companies itemise buildings insurance as a separate line on the service charge statement, which makes it easy to confirm.
If you’re buying a leasehold property, your solicitor should confirm whether buildings insurance is included in the service charge as part of the conveyancing process.
Before we go
Building insurance is usually part of the service charge for leasehold properties, but it’s not guaranteed. Check your lease, confirm what’s included with your freeholder or managing agent, and make sure you understand what their policy covers and what it doesn’t.
Whatever the freeholder’s buildings insurance includes, your personal belongings are always your responsibility. If you don’t have contents insurance in place, it’s worth sorting that out. With Lemonade’s contents insurance, your belongings are covered from day one.
Building insurance service charge FAQs
Is buildings insurance always included in a service charge?
Not always. It’s common for the freeholder or management company to arrange buildings insurance and recover the cost through the service charge, but this depends on the terms of your lease. Always check your lease agreement to confirm, and ask your management company for a breakdown if you’re unsure.
Do I need my own buildings insurance if I own a leasehold flat?
In most cases, no. The freeholder is typically responsible for insuring the building, and this is usually funded through the service charge. However, if buildings insurance isn’t included in your service charge, you may need to arrange it yourself. Check your lease and speak to your lender if you have a mortgage.
What does a freeholder’s buildings insurance actually cover?
A freeholder’s buildings insurance policy typically covers the structure of the building, communal areas, and repairs resulting from insured events such as fire, flooding, or storm damage. It does not cover your personal belongings, internal fixtures you’ve added, or accidental damage within your flat.
What is the difference between a service charge and ground rent?
A service charge covers the costs of maintaining and managing the building, including communal cleaning, repairs, and often buildings insurance. Ground rent is a separate payment made to the freeholder simply for the right to occupy the land on which the property sits. Under the Leasehold Reform (Ground Rent) Act 2022, ground rent on new residential leases in England and Wales has been set at zero, though existing leases may still include it.
Am I responsible for insuring my own internal fixtures and fittings?
Yes. The freeholder’s buildings insurance covers the structure of the building, but internal fixtures and fittings you’ve added, such as fitted wardrobes, kitchen upgrades, or bathroom improvements, are generally your responsibility. Contents insurance can cover these in some cases, but it’s worth checking your policy wording to confirm what’s included.
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