It transpired that the individual leaseholders were responsible for insuring their own flats and that many had failed to make adequate arrangements for the restitution of the building. The consequence was that the insurance cover could not meet the cost of reinstating the building, so leaving leaseholders with the problem of finding new accommodation while still retaining an outstanding mortgage liability. The purpose of the amendment is to go beyond the parallel right of the landlord to challenge the RTM's choice of insurers by adding an obligation for there to be a single building policy in force at all times, and to require that this policy represents best value rather than only the cheapest option. The courts have confirmed in the past that freeholders are not required to opt for the cheapest insurance quotation but, rather, are obliged to obtain the best deal available. There is no requirement that the RTM company make insurance arrangements separate from those which existed when the management was undertaken by the landlords.
Many landlords use bulk purchasing power to provide the best deal that they can for their tenants.
It may not be possible for a single building to obtain such favourable terms. This amendment provides a mechanism for the landlord, or any other party to the lease, to challenge an insurance arrangement on the grounds that it does not represent best value to the service charge payers and to offer an alternative and possibly a better deal. Indeed, it is possible that, if a sufficient number of buildings were withdrawn from the landlord's collective arrangements, the landlord would not be able to obtain such favourable terms for those buildings which remain within his portfolio, thus prejudicing the interests of others. Many freeholders, as Members of the Committee are well aware, are concerned that one of the effects of leaseholders claiming the right to manage will be to disrupt insurance arrangements. For many of those landlords whose portfolios are made up primarily of ground rent investments, the right to earn commission from the provision of buildings insurance represents a principal element of value.