Leasehold flood risks: Readers may remember that DEFRA (Department for Environment, Food and Rural Affairs) had been persuaded to support a new affordable flood risk insurance scheme which guarantees flood cover for most homes. This scheme called “flood re” was promoted by the ABI (Association of British Insurances) as part of the Water Act 2014. Throughout that process one of the regular spokesman for the ABI was their head of property insurance Aidan Kerr.
The problem for leaseholders is that DEFRA was somehow persuaded to exclude almost all leasehold properties from “flood re” scheme on the basis that somehow there was no evidence leasehold homes face a problem in obtaining flood cover.
In April 2015 the regulations supporting the Water Act and “flood re” came into force. “Flood re” as a company has now been created to administer the scheme, which will become active from April next year. Until then the “statement of principles” that has historically sought to ensure cover for all homes remains in place. So only as we move to April 2016 will leaseholders begin to discover if they have a problem and by how much their premiums will increase.
Despite the whole leasehold sector telling DEFRA it could be wrong, the legislation now mandates that all leasehold blocks are excluded from “flood re”. The only exception is the tiny number of blocks owned as commonhold and those with three or less flats where the freeholder happens to also live at the site. This has increased leasehold flood risks issues.
In 2014 LKP forced DEFRA to disclose “I can confirm that DEFRA does not hold data that specifically relates to the impact of flooding in the residential leasehold sector”. So it had no evidence to differentiate between the flood problems faced by leasehold and freehold homes and therefore no means of knowing it there is any less a risk to leasehold homes than there is to freehold homes. Part of the correspondence can be read HERE and HERE
Of course when DEFRA and the ABI were deciding leasehold homes could be left out of “flood re:” in the first part of 2014 they did not know how many leasehold homes there were. At the time the only available figures were the old and completely inaccurate figures used by DCLG of 2-2.5 million homes in England. Since then LKP has persuaded DCLG to look at the numbers again and the leasehold sector magically grew to 4.1 million homes in the Autumn of 2014.
So how do most of these 4.1 million homes disappear? At a recent Westminster meeting the new head of “Flood re” – the company that will administer the affordable flood insurance their new chief executive, Brendan McCafferty claimed that all households are covered by the new “flood re:” scheme – save for those in the private rental sector.
When challenged about this “disingenuous” claim – after it was pointed out by a delegate that the vast bulk of leasehold homes are excluded from “flood re:” Mr McCafferty gave very long and rambling reply without ever once mentioning the word leasehold. There is no evidence of a problem claimed McCafferty in a vague way as he disappeared 4 million homes.
As for Aiden Kerr. The man who often represented the ABI and helped persuade DEFRA to exclude leasehold homes from “flood re”. The Aiden Kerr who dismissed the LKP figures quoted by the Financial Times which suggested that 70,000 leasehold homes may be in the high risk flood category. The Aiden Kerr who said that everyone in the leasehold sector from ARMA to the Council of Mortgage Lenders to the British Property Federation were wrong. It turns out Aiden Kerr has been appointed Director of Operations for “Flood re” company. Mr Kerr’s appointment like a number of others subject to “regulatory approval”. However, moving offices will not be too difficult for Mr Kerr as “Flood re:” offices happen to be in the same building as the ABI.
In the mean time DEFRA have paid £90,610.00 for a market survey to understand if the public has concerns about flood insurance – although from the tiny number of leaseholders they contacted (6% of 1083 people in the survey i.e 65 people – page 11 of the report) any views will inevitably be highly speculative. LKP would suggest the survey as far as the leasehold sector is concerned is worse than useless. Although the research took place in 2014 and was supposedly published in July 2015 it is somehow difficult to find on the DEFRA web site. You can read the market research HERE. Readers may notice they only managed to contact a tiny number of leaseholders, did not ask them the right questions and did not even seem to understand that in most cases its the managing agents and landlords who arrange the insurance cover and would be the only ones to know if there were a problem
LKP continues to investigate what mechanisms are in place by DEFRA and “Flood re” to monitor what problems are faced by leasehold homes with flood insurance.
Related posts:
LKP urges minister to include leaseholders in Flood Re insurance plan
Daily Express reports Leasehold Knowledge Partnership involvement in Flood Re
Ground rent scandal risks becoming full-blown crisis as loans are refused on blighted homes
Leasehold owners excluded from government’s flood insurance plan, Flood Re
LKP lunch-time Friday lecture: How we made 2.1 million homes appear
Packed LKP meeting at Westminster for leasehold reform
This issue was raised, and the number of leasehold properties likely to be affected, during the progress of the Water Bill (in early 2014) when the Council of Mortgage Lenders noted that properties not covered by Flood Re included:
• all properties built since January 2009 (ABI stated: “homes built after 1 January 2009 will not be covered – as applied under the old Flood Insurance Statement of Principles – to avoid incentivising unwise building in flood risk areas”)
• commercially-insured privately rented homes;
• leasehold properties that were also commercially insured and
• properties in council tax ban H
It also noted that some mortgaged leasehold properties were eligible for Flood Re, where leaseholders protected their homes on a domestic policy with an individual premium. This type of cover was most likely to be in place for properties in smaller blocks of flats or sub-divided houses. In other cases, however, the leaseholder would not be covered by a policy eligible for Flood Re, but by the freeholder’s commercial insurance, which might be much more expensive.
The Council of Mortgage Lenders proposed::
•there should be a reduction in number of properties potentially excluded from Flood Re. In particular, it believed that leasehold and private rented properties should be covered by the scheme.
• a possible compromise proposal under which insurance currently provided under the “statement of principles” remained available for households that might be excluded from Flood Re (specifically leasehold and privately rented homes). A review of the impact of exclusions from Flood Re could then be undertaken at a later date.
So it has been argued by legislators that leasehold and private rented housing are covered by commercial insurance.
Surely if it is the council who has authorised the building programme in the first instance i.e. Planning Dept and Developer, they inturn are liable as to any depreciation in value? Those who Promoted the site, those who backed the site and those who financed the site… Old bit of legislation here Land Clauses Consolidation Act 1845. Additionally there are the merits of using the Derogation of Grant against the opposition including the application of a Blight Notice. No council should ever have been allowed to build on flood plains – that is what they are there for. It is a different route but one clearly underused, it will not apply to all situations either…