Cases - Cos Services Limited v (1) Irene M Nicholson (2) Wendy E Willans
Record details
- Name
- Cos Services Limited v (1) Irene M Nicholson (2) Wendy E Willans
- Date
- [2017]
- Citation
- UKUT 382 (LC)
- Legislation
- Keywords
- Service charges – Landlord and Tenant Act 1985, s27A – Reasonableness of insurance premiums – Block policy
- Summary
-
The appellant landlord was the freeholder of the block. The principal issue on appeal and in the FTT was whether the insurance premiums claimed by the appellant from the respondents had been 'reasonably incurred'. The landlord had insured the block under a block policy. The insurance premiums paid under the block policy were substantially higher than comparable insurance premiums found by the respondents.
In dismissing the appellant landlord’s appeal, the Upper Tribunal held that the burden was on the landlord to satisfy the relevant tribunal on the balance of probabilities that the costs in question have been reasonably incurred. In Forcelux Ltd v Sweetman [2001] 2 EGLR 173 the Land Tribunal required two questions to be addressed, first the appropriateness and lawfulness of the landlord’s actions in claiming the costs and secondly the reasonableness of the amount being claimed. Conflictingly, in Avon Estates (London) Ltd v Sinclair Gardens Investments (Kensington) Ltd [2013] UKUT 0264 (LC) the Upper Tribunal required the landlord to prove one of two things, either that the rate charged was representative of the market rate, or that the contract was negotiated at arm’s length and in the market place. Accordingly, provided that the landlord had conducted the proper processes it could be that an insurance premium, which was itself for an unreasonably high amount, was nevertheless 'reasonably incurred'.
In Waaler v Hounslow LBC [2017] EWCA Civ 45 the Court of Appeal considered the meaning of 'reasonably incurred' within s.19 of the LTA 1985. It held that whether costs had been reasonably incurred was not simply a question of process: it was also a question of outcome. Accordingly, it must follow that the tribunal was required to go beyond the issue of rationality of the landlord’s decision making and to consider in addition whether the sums being charged was, in all the circumstances, a reasonable charge. It was, as identified in Forcelux, a two-stage test.
It was not necessary for the landlord to show that the insurance premium sought to be recovered from the tenant was the lowest that could be obtained in the market. However, the Tribunal must be satisfied that the charge in question was reasonably incurred. In doing so, it must consider the terms of the lease and the potential liabilities that were to be insured against. It required the landlord to explain the process by which the particular policy and premium had been selected, with reference to steps taken to assess the current market. Tenants could place before the Tribunal such quotations as they may have been able to obtain, but in doing so they must ensure that the policies were genuinely comparable, in the sense that the risks being covered properly reflected the risks being undertaken pursuant to the covenants in the lease.
It was open to any landlord with a number of properties to negotiate a block policy. It was, however, necessary for the landlord to satisfy the Tribunal that invocation of a block policy had not resulted in a substantially higher premium being passed on to the tenants of a particular building without any significant compensating advantage to them.