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Understanding RTM Insurance
A Right to Manage company is a unique legal entity: it is not the freeholder, it is not a managing agent, and it is not simply a group of residents acting informally. It is a company incorporated specifically to exercise statutory management rights under the Commonhold and Leasehold Reform Act 2002, and it carries legal obligations that come with significant potential liability.
Central to those obligations is the duty to arrange and maintain adequate buildings insurance for the block. This obligation transfers from the freeholder to the RTM company on the acquisition date and cannot be delegated away — even if the RTM company appoints a managing agent, the ultimate responsibility for ensuring appropriate cover is in place remains with the RTM company itself.
Beyond buildings insurance, RTM company directors face personal exposure. Decisions about maintenance, contractor selection, service charge expenditure and insurance adequacy are all management judgements — and if those judgements prove wrong and leaseholders suffer financial loss as a result, the directors can be held personally liable. Director and officer insurance is therefore a key component of a well-structured RTM insurance package.
What RTM Companies Need
Core cover for the full structure and communal areas of the block, insured to full reinstatement value as required by the leases.
Third-party liability protection for bodily injury or property damage occurring in the communal areas of the block — typically £5 million or more.
Personal protection for RTM company directors against claims arising from management decisions made in their capacity as RTM directors.
Broader management liability cover extending to the RTM company as a corporate entity, covering employment disputes and regulatory investigations.
Mandatory cover for any RTM company that employs staff directly — a legal requirement under the Employers' Liability (Compulsory Insurance) Act 1969.
Given that water damage is by far the most frequent claim on residential block policies, ensure this is covered on adequate terms — not excluded or subject to an excessive excess.
RTM Insurance FAQs
What is the Right to Manage and how does it affect insurance?
The Right to Manage is a statutory right under UK law that allows qualifying leaseholders to take over management of their residential block without proving any fault by the freeholder. Once exercised, the RTM company assumes all management functions including — critically — the arrangement of buildings insurance. The RTM company becomes the policyholder and is responsible for ensuring the cover is adequate, compliant with lease requirements and renewed on time each year.
Who qualifies as an RTM company director and do they need separate insurance?
RTM company directors are typically leaseholders in the block who have volunteered to serve on the RTM company's board. They are unpaid volunteers in most cases, but that does not reduce their legal exposure. Directors can be personally sued by leaseholders for negligent management decisions. Directors' and Officers' (D&O) liability insurance covers legal defence costs and any damages awarded, protecting directors' personal assets. It is strongly recommended for all RTM companies regardless of size.
What happens if the RTM company fails to arrange adequate insurance?
The consequences can be severe. Under-insurance means that in the event of a major claim — a fire, for example — the insurer may apply the principle of average and reduce the payout proportionally, leaving a shortfall in the funds available to reinstate the building. This shortfall would have to be met from service charge reserves or by raising a special levy on leaseholders. Directors who failed to arrange adequate insurance could face personal claims from leaseholders for the resulting loss.
Can an RTM company use the same insurer as the previous freeholder's policy?
Yes, if the insurer is willing to transfer the policy or issue a new one in the RTM company's name on similar terms. However, this is not always the best option. The RTM company has the freedom to go to the wider market and should use this opportunity to ensure the cover is genuinely fit for purpose. A specialist broker can approach multiple insurers and present the risk competitively, potentially achieving better terms than simply inheriting the previous freeholder's arrangement.
How do we inform leaseholders about the new insurance?
Under the Landlord and Tenant Act 1985, leaseholders have the right to request a written summary of the block's insurance cover and to inspect the policy document itself. As good practice, the RTM company should proactively circulate the policy schedule to all leaseholders at the start of each policy year, along with the insurer's claims contact details. This builds confidence in the RTM company's management and ensures every resident knows who to contact if they need to make or report a claim.
Practical Guidance
When transitioning insurance from the freeholder to the RTM company, working through the following steps reduces the risk of gaps in cover and ensures the RTM company meets its obligations from the outset.
First, obtain a copy of the current buildings insurance policy from the freeholder. Review the sum insured against a current reinstatement valuation — if no valuation has been conducted recently, commission one before the RTM acquisition date. Note the renewal date and any claims currently in progress under the existing policy.
Second, read the insurance covenants in the leases carefully. Identify the minimum insured perils, any specified minimum liability limits, and whether the leases require the insurer to meet certain financial strength criteria. Your broker will need this information to ensure the new policy is compliant.
Third, approach the market through a specialist block insurance broker with at least six weeks before the cover is required. This gives time to receive multiple quotes, review policy wordings and address any underwriting queries. Avoid leaving insurance to the last week before the acquisition date.
Finally, once cover is placed, notify all leaseholders in writing. Include the insurer's name, the policy number, the sum insured, the renewal date and the claims notification process. Keep copies of all insurance documents in the RTM company's records.
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