By Harry Scoffin
The cladding crisis has rippled through the insurance market, with leasehold tenants in dangerous apartment buildings “being hammered” by “inflated bills”, BBC Radio 4’s You and Yours programme was told yesterday.
Lessees of flats in Birmingham’s Islington Gates, a mixed-use development with 144 properties wrapped in Grenfell ACM (aluminium composite material), claim the cost of building’s insurance is five times higher than it was last year.
This comes on top of the expensive waking watch fire warden measures they are having to pay for.
“They have just received their building’s insurance bill. It’s £190,000, divided between them, but that’s up from £40,000 last year, so a big increase,” reporter Melanie Abbott said.
Previous insurer Aviva reportedly refused to continue carrying the risk by itself, with five insurance companies now involved in the policy.
The site falls under resident control, with a managing agent appointed and overseen by Islington Gates Management Company Limited.
The programme heard from Philip Davis, the chair of Islington Gate’s management committee, who said the hike has come as a big surprise to leaseholders:
“Obviously, they’ve upped the risk factor and this is galling because we’ve been proactive and doing everything that we should do to address this cladding problem. Nobody instructed us to do it. We’ve just taken the view, quite properly, that we need to make the building safe. It’s hit us just as we were about to embark on our first contracts.”
He made the point that there will be blocks which have not identified the cladding and “done nothing” and yet won’t “be hammered” by insurers, which he said was unfair.
“I think it’s really about how we deal with this fact that leaseholders who didn’t cause this problem – it’s down to builders, it’s down to developers, it’s down to the government not making sure the regulations were right – why are we being asked to shoulder these burdens for something we didn’t do,” Mr Davis said.
Politicians should learn from how the state responded to the banking crisis of 2008 in order to address the cladding crisis’ impact on the insurance market, he argued:
“If the government stepped in as a guarantor, it wouldn’t necessarily have to pay out any money – like it did in the financial crisis where it guaranteed everybody’s bank accounts up to £85,000 – it would actually support the market place, so there’s a crisis in terms of the insurance market because of this Grenfell cladding issue.”
Lessees are still working to get in the site’s application for the private sector ACM cladding remediation fund, which closes at the end of the month.
Speaking to the programme, LKP chair Martin Boyd said managing agents are growing increasingly worried about obtaining insurance policies:
“The sector has a number of concerns about the kinds of costs that are cropping up, and more importantly the potential liabilities that could arise should we get more fires like we had in Bolton and Barking.”
He said that insurers’ fears have gone beyond ACM Grenfell cladding:
“Building’s insurance is becoming a huge problem because of the cladding crisis. Fairly inevitably, the insurers are becoming more and more cautious.”
Aviva refused to comment.
A representative from the Association of British Insurers did, however, speak to the programme, criticising both ‘building owners’ and government.
Mark Shepherd said the premiums have to go up because of the cladding crisis paralysis:
“We are now two and a half years on from Grenfell. We have seen very little action taken … Clearly we have seen, even since Grenfell, some quite devastating fires where there has been combustible cladding, so that risk is clearly fundamental to the potential costs that could come down to insurers.”
He rejected the suggestion by Mr Davis that some leaseholders on cladding sites will be spared hikes for “doing nothing”, saying all insurers have been investing significant amounts of time and energy “in doing a full review of the buildings they cover”, particularly high rises.
The feature ended with the following statement from an MHCLG spokesperson:
“The pricing and availability of insurance is a commercial decision that the government doesn’t intervene in. Building owners should be exploring all options to ensure that these extra costs aren’t passed on to leaseholders.”
Leasehold law ensures freehold landlords can recoup the cost of building’s insurance from their leaseholders. Most leases support the position that tenants must pay for the policy.
How shameful that yet again the Lessees are being used as cash cows. It was never the fault of the Lessee as to the construction materials used, as stated in the article this was the sole remit of the Developers.
I am surprised that Aviva have backed out as they already use Leasehold Ground Rents as an investment revenue spinner. Or is it because of that and that they may lose part of their own investment monies as this appears to be used for the raising of Mortgages.
If the Lessee/s can’t sell then there will be limited lending for Mortgages – enter Negative Equity. For those trapped they will not be able to give away their homes.
For some time now Lenders have not been using their own monies. They are only the Lender on the day of signing for the Mortgage. After this they step aside in favour of an internal lending pool which is underpinned by Leasehold monies, like Ground Rents, Service Charges, Buildings Insurance, Maintenance Etc – how long is the financial length of string.
This was my observation when looking through the differing names of companies using SPV as part of the name. A Special Payment Vehicle now appears to be the ‘norm’ for loaning of Mortgage monies.
The Lender stands aside in favour of Leasehold monies used – they become the Administrator of the Charge/Debt, after the Lessee/s sign up. If there is a default the value of the Premises is passed back to the Lender who inturn is feeding back to the internal lending pool. Therefore one can come full circle as to how the monies for the loan are raised, using Leasehold monies, not just Insurance but Service Charges to Ground Rents plus others.
It is odd because someone like Aviva is on a win win from the granting of the Mortgage (internal lending pool) to offering insurance (monies drawn from the lending pool for payouts), which inturn is financed by Leaseholders (who have created the lending pool) at source, who have helped unwittingly, to its creation. When disputes arise, either from Repossession/Forfeiture no doubt the disputed monies are returned back to the original lending pool ; coming full circle.
Leaseholders from the outset have been set up at source to fail. If this is not a modern version of financial slavery then what is?
There is the added burden when Freeholders alike take out additional Mortgages over the whole building & Estate. This does create a Deed of Priority issue, which no-one appears to be tackling…