Insurance Excess Fund

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  • Insurance Excess Fund

    I have recently purchased a flat and during the completion the managment of the building and surrounding areas changed from being DIrector led to being managed by an third party. The new management company have increased the monthly management charge by 40%. Whilst myself and other residents appreciate that there will be a increase (due to their respective fees) they have also imposed a charge to the sum of £12,500 (there are 36 flats) to accomodate an 'Insurance Excess Fund' without giving much explanation as to how they calculate this sum and furthermore what exaclty it covers other than the excess for 'flat to flat' leaks. In addition, they are also charging residents an annual 'reserve fund contribution'. Obviously, if there has been a historical issue with buildings insurance excess costs being applied then I can understand the requirement for such fund being created, however there is an extreme lack of transparecy on how this is calcuated and applied. The written explanation is very poor.

    Does anyone have experience of such a charge being imposed? and how has this been managed/communcated?

    All help gratefully received.

  • #2
    When you say it has gone from being director led to being managed by an third party, do you mean that the tenants own the freehold collectively and that whilst the directors once did all the managing, now you have employed an agent? If that is the case then the company is the agent's client and the agent must follow its instructions. Accordingly, if the tenants collectively decide they do not want to pay these sums then the company tells the agent to forget it.

    It is of course wise to set up a reserve fund, but I have never heard of and insurance excess fund. What can be said is that the contributions to reserve funds and payments on account of service charge have to be reasonable.

    What you need to watch here is what if the agent's fees are based on and ensure the agent is not increasing contributions to increase his fees.

    Go here for further information on service charges.

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