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Warning to block managers, freeholders and leaseholders

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Warning to block managers, freeholders and leaseholders

The Upper Tribunal (UT) has held that insurance charges made by a landlord of a block of flats (the flats) were not payable by the tenants, as they were not "reasonably incurred".  (This item shared with us by John Saulet of Saulet Townshend LLP)

The landlord had put in place a block insurance policy, covering the whole of its property portfolio. The insurance premium charged for the flats for each year between 2014 and 2017 exceeded £12,000. This amount was divided between the 16 flats in accordance with the terms of the leases.

Under section 19(1) of the Landlord and Tenant Act 1985, any costs forming part of a service charge charged to residential tenants are only payable to the extent that they have been "reasonably incurred". If challenged, the burden is on the landlord to prove that this requirement has been satisfied.

On the application of one of the tenants, the First Tier Tribunal found that the insurance charges had not been reasonably incurred and, on appeal, the UT agreed.

Although the landlord may have acted rationally and in accordance with the leases, the UT was clear that the statutory reasonableness test was designed to give tenants an additional level of protection. A landlord is free to put in place a block policy, but it must first check the resulting premium against other quotations in the market, for a similar level of cover. Given that the tenant had produced evidence of comparable policies with an annual cost of £2,000 to £3,000, it remained a "mystery" to the UT as to why the premiums charged by the landlord remained so high.

This case serves as a useful reminder to landlords arranging insurance for blocks of flats, especially when their usual approach is simply to renew an existing block policy. Although block policies should (and often do) benefit from economies of scale, landlords should still examine the resulting premium for each block to ensure that it accurately reflects market conditions.

Case: Cos Services Ltd v Nicholson and Willans [2017] UKUT 372 (LC) (3 October 2017)

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About the author

Martin Silman

Martin began his landlord journey 30 years ago, while working in an international role for a global telecommunications company. Since retiring he has extended his portfolio, which he manages with his wife, but has always focussed on the ‘small student HMO’ sector preferring to offer homes in the community for small groups to the more common ‘pack them in and take the money’ mentality. He has chaired the PDPLA for the past 12 years and has overseen the Associations transition from small local self-help group to a much larger and more professional institution which is recognised and listened to nationally. Alongside his PDPLA role, he also has leadership roles in a number of other local organisations – bringing his unique perspective, driving for change and increased use of technology while respecting the history that brought us here.

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