When leaseholders exercise their Right to Manage, they take on full responsibility for insuring their building. We help RTM companies get specialist block buildings insurance right — from day one.
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RTM & Insurance
The Right to Manage (RTM) is a statutory right granted to qualifying leaseholders under the Commonhold and Leasehold Reform Act 2002, allowing them to take over the management of their residential building from the freeholder — without having to prove any fault or pay compensation. Once exercised, the RTM company assumes full management responsibilities, including the critical obligation to arrange and maintain adequate buildings insurance for the block.
This is where many newly formed RTM companies face their first significant challenge. Arranging block insurance is not the same as renewing a home insurance policy. The sum insured must reflect the full reinstatement cost of the building; the policy must be specifically written for multi-occupancy residential blocks; and the RTM company must ensure that the cover meets any requirements set out in the individual leases.
Getting RTM insurance wrong — whether through under-insurance, using an inappropriate policy type, or failing to include all required extensions — can expose the RTM company directors to personal liability and leave every resident's property inadequately protected.
What You Need
The core requirement: full reinstatement cover for the block's structure, communal areas, and all shared services and infrastructure.
Protects the RTM company against third-party claims for injury or damage arising in the communal areas of the block.
RTM company directors can be held personally liable for management decisions. D&O cover provides essential protection for the individuals involved.
If the RTM company employs any staff directly — a caretaker, cleaner, or maintenance person — employers' liability insurance is a legal requirement.
Water damage is the most common claim on block policies. Ensure the policy's escape of water excess and cover limit is appropriate for your block's age and plumbing.
Statutory inspection and insurance for lifts, passenger hoists and boilers — available as an extension where the block has relevant plant.
Common Questions
When does the RTM company take on insurance responsibility?
The RTM company assumes management functions — including insurance — on the acquisition date, which is the date specified in the RTM notice as the date on which the right to manage is acquired. This is typically at least three months after the RTM claim notice was served on the freeholder. It is important to have insurance in place from the acquisition date, not from the next renewal of the freeholder's existing policy. If there is a gap between the acquisition date and the freeholder's policy renewal, the RTM company should arrange its own cover for the intervening period.
Can the RTM company simply continue the freeholder's existing policy?
In most cases, no. The freeholder's policy will have been arranged in the freeholder's name, and the RTM company will not be the named insured. Some insurers may agree to a novation or substitution of the insured party, but this is not guaranteed and needs to be arranged explicitly. In practice, most RTM companies arrange new specialist cover in the RTM company's name from the acquisition date, ensuring the policy correctly reflects who is managing the building.
Does the lease dictate what insurance the RTM company must have?
Yes, in most cases. Residential leases typically include specific insurance covenants setting out the minimum requirements for buildings cover — including the perils to be insured, the requirement to insure to full reinstatement value, and sometimes minimum liability limits. The RTM company must ensure the policy it arranges meets or exceeds these lease requirements; a failure to do so could constitute a breach of the management obligations the RTM company has taken on.
Are RTM company directors personally liable if the insurance is inadequate?
Potentially, yes. RTM company directors owe duties to the leaseholders whose interests they are managing. If inadequate insurance leads to unrecovered loss following a claim — for example, if the block is under-insured and the payout does not cover full reinstatement — the directors could face claims from leaseholders. Directors' and Officers' liability insurance (D&O) is strongly recommended for RTM company directors to protect them against such claims.
How is the insurance premium recovered from leaseholders?
The RTM company recovers insurance costs through the annual service charge. The premium is a recognised service charge item under the Landlord and Tenant Act 1985, and leaseholders are obliged under their leases to contribute their proportionate share. The RTM company should include the insurance premium (and any associated broker fees) in its service charge budget and apportion it among leaseholders in accordance with the proportions set out in each lease.
Setting Up Your Cover
The most common mistakes RTM companies make when first arranging insurance are under-insuring the building and failing to read the lease insurance covenants carefully. Both are avoidable with the right preparation.
Before approaching insurers, commission a professional reinstatement cost assessment for the building. This gives you a defensible sum insured based on current construction costs, and demonstrates to insurers that the RTM company is taking its obligations seriously. Chartered surveyors and specialist reinstatement valuation firms can typically turn these around quickly — they are not expensive relative to the cost of getting the sum insured wrong.
Read the insurance covenants in the leases carefully before placing cover. If the leases require specific perils to be insured or minimum liability limits to be maintained, your policy must reflect these. A specialist block insurance broker will be familiar with common lease requirements and can help ensure the policy wording is compliant.
Finally, notify all leaseholders of the new insurance arrangements following the acquisition date. Share the policy schedule, insurer details and contact information for making claims. Transparency in insurance arrangements is both good governance and a statutory obligation under the Landlord and Tenant Act 1985.
Don't let insurance be the stumbling block after exercising your Right to Manage. Get specialist cover from brokers who understand RTM companies and their obligations.
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