My Property is an apartment. Why do I need property insurance?
Written by Dave Moore
My Property is an apartment. Why do I need property insurance?
Throughout Bulgaria, many developers – or complex owners will have an insurance policy which covers ‘All risks’ throughout the complex. Rarely are the details of this document in the public domain, hence it is almost impossible to discover exactly what the policy covers in terms of limits, events etc..
Most of these policies will include protection for buildings to a certain value, for communal contents to a certain value and personal and public liability to a certain value, however in all circumstances it will be written in favour of the insurance policy holders. This will insure that it is the developer’s interests (or complex owners) that are cared for first before giving any consideration to individual apartment owners, instead it will be sufficient to contribute their share of the building, specifically facilities and reception areas, swimming pools etc.. A further reason for this is because unlike in the UK where an apartment would be leasehold, in Bulgaria it is much closer to freehold, with individual apartment owners owning a share of the common parts of the building (walls, corridors, stairwells, lifts etc..) meaning that if it breaks, it’s really their responsibility to fix it.
The payout of a claim by the Developers insurance policy will in all likelihood be used to rebuild the developers share of the complex which falls down – it is also likely to pay for common parts of the building and importantly all personal and public liability claims where a person is injured. In many circumstances relating to building cover though, the insurance policy may in fact fall well short of the actual cost required re-construct the building to former glory – rendering many peoples investment useless. At that point, individual property owners will be asked to contribute money for the rebuilding process. Those who have insurance will not have to dip into their pocket – those who don’t, will.
I have read many Maintenance and Management contracts and a few pertinent points similar to statements like the ones below often appear.
From your maintenance contract;
3.5. The Assignor shall be obliged to reimburse the Assignee proportionally to the owned by the Assignor ideal shares of the Building the expenses that shall exceed the normal expenses for the maintenance of the Building.
This to me says, if the building needs work doing to it, the individual owners are responsible for re-imbursing the maintenance company.
6.2 The Parties shall start performance of their obligations hereunder from the beginning of the year ****. The parties shall be released from liability for full or partial non-fulfilment of their obligations if it is a result of force majeure.
6.3.1. “Force majeure” includes events or actions of extraordinary character, such as war, blockade, natural disasters, embargo, strikes, governmental and
administrative restrictions, and other similar events and actions which are unexpected and insuperable by the parties, and have occurred after the conclusion of the Agreement.
6.3.2. Should the force majeure event persist for more than 3 (three) months, the non-defaulting party may reject the contract and claim its termination.
Although these 3 points above provide a get out clause to point 3.5 in many events – consider this. If people don’t pay the required amounts – they won’t have a functioning apartment, so whilst they can escape from their obligations within the maintenance agreement, they are left with a half built apartment – or even worse.
In the circumstance where there were too many owners that didn’t have insurance and the developer’s policy wasn’t sufficient to bare the entire cost, it may be the case that the building doesn’t in fact get re-built. In this circumstance, those who have insurance will get a pay out in cash for their loss (for the proposed rebuild cost of their share, or insured amount whichever is lower) – and those without insurance would end up with nothing. Bear in mind that even in case 100% of owners have insurance, they could deny rebuilding but switch to buying at another development.
Insuring your property and it’s contents is ultimately a personal choice in most circumstances. The few circumstances where it’s not a choice are listed below;
- When the property has a mortgage or charge over it – the lender will insist upon a specific insurance policy to cover the risk to the lender
- When the party enters into a management contract where insurance is a mandatory obligation of the contracting party.
- When the apartment owner is un-willing to accept any potential shortfall in the insurance held by the complex owner.
Many Management Contracts have a definition like below;
3.1 The Contracting Party shall be responsible for insuring the property
and contents against all normal risks including, fire, earthquake, flood,
damage to contents, and public liability. The Executing Party shall be
authorised to initiate and administer claims on behalf of the
Contracting Party while providing due information as to their actions
in this regard.
The above point indicates to me that the building is not adequately covered in terms of insurance for certain events. Especially when coupled with the fact that the Management company are offering to sell individual policies to apartment owners, albeit at a much more expensive cost than I can offer.
Almost everyone who owns a property in Bulgaria occupies the position of 2 and 3 above. There are many others that have the added reason of point 1.
Although you may not have a mortgage on your property, it is worth examining why a lender will insist on an individual insurance policy as adequate protection in the bank’s interest. Please read on;
In the UK, a block, or group building policy is sufficient for any UK lender to secure a mortgage on a flat or apartment. The reasons for this are numerous, but most importantly;
- Greater transparency and trust with insurers (all insurers need to be part of a strictly regulated body to ensure they provide adequate protection).
- A distinction between leasehold and freehold properties
Bulgarian property and insurance industry has a much lower trust level, furthermore a different attitude towards leasehold and freehold properties. The banks insist on an individual policy for apartment owners quite simply because they do not trust a group, or block policy in any circumstances. This indicates to me any property owner in Bulgaria is taking too big a risk in not having any private insurance, as this is a risk that the banks aren’t prepared to suffer.
If you examine the cost, most apartment owners in Bulgaria have managed to acquire a policy under £150/ annum for covering building, contents, third party liability and window breakage. This works out at just over £12/ month and ensures compliance with your management contract and most importantly peace of mind.
To arrange insurance or discuss any of the above, please contact Dave Moore on 01142852958, 07738887555, or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Disclaimer; The above statements are made by Dave Moore, Director of Balkan Legal & Finance ltd. and are personal opinions expressed at the time of writing with no acceptance of liability. Dave Moore is licenced to provide an execution only service for the sale and provision of insurance for properties in Bulgaria. Dave Moore is qualified to provide generic advice and information on the needs for insurance and obligations and responsibilities of certain parties, however cannot advise on an individuals personal requirements fro Bulgarian building or liability insurance.
