First-tier Tribunal Rules Management Company Insures Building

OUTCOME: Allowed

FIRST-TIER TRIBUNAL

PROPERTY CHAMBER

(RESIDENTIAL PROPERTY)

Case Reference : CAM/42UD/LSC/2019/0080

A : [NAME_1] : [NAME_2], 59–63 [ADDRESS] [POSTCODE]

Applicants : [redacted]

the 11 individual lessees listed on the application

Representative : [NAME_4] [public access barrister)]

Respondent : [redacted]

Type of Application : for determination of reasonableness and payability

of service charges (insurance) for the years 2012 to

date (2019)

Tribunal : Judge G K Sinclair

Date and venue of : Tuesday 28th April 2020, by telephone hearing

Hearing

Date of decision : 12th May 2020

DECISION

Cases referred to :

[NAME_8] v [COMPANY_9] [2017] UKUT 497 (LC)

Bristol & West BS v Mothew [1998] 1 Ch 1 (CA)

[NAME_10] v [ADDRESS] Co Ltd [2012] UKUT 245 (LC)

• Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . paras 1–6

• Relevant provisions in the lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . paras 7–20

• Material statutory provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . paras 21–26

• The hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . paras 27–42

• Discussion and findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . paras 43–60

1. This application was due to be determined by the tribunal by means of an oral

hearing at Cambridge Magistrates Court on Tuesday 28th April 2020. However,

due to restrictions imposed in consequence of the coronavirus pandemic in late

March this had to be altered, and it was agreed that the hearing should proceed

as a remote hearing conducted by telephone. In addition to judge, counsel and

the parties or their representatives was a recently appointed salaried judge of the

tribunal, but strictly in the capacity of observer. This is the decision of the judge

appointed to hear the case, and him alone.

2. Reframing the various questions asked in the application form and applicants’

statement of case, the applicant lessee-owned management company and the

eleven individual lessees seek determinations that :

a. The duty to insure the building under the residential leases is that of the

management company named in the leases, and not the landlord

b. The landlord is not entitled to demand contributions to the insurance

premium from the lessees of the flats

c. Having arranged insurance through a professional broker the landlord is

not entitled to add and retain commission for himself

d. The insurance arranged by the landlord is non-compliant with what the

leases require

e. The landlord should therefore repay the commission he added to the sums

demanded from the lessees of the flats for insuring the building

f. The lessees of the flats should not have to pay for plate glass insurance

which benefits only the ground floor shop units

g. The lessees of the flats should not have to pay 100% of the service charges

for the building

h. The landlord should remit to the management company contributions due

from shop lessees for insurance premiums and service charges

i. Where the shop units are unlet the landlord should directly contribute the

share of insurance and service charges due in respect of such unlet units.

3. At the hearing the applicants also sought an order with respect to the landlord’s

costs under section 20C of the Landlord and Tenant Act 1985.

4. For the reasons which follow the tribunal determines that :

b. As the insurance premium forms part of the overall service charge levied

by the management company, and in view of the finding recorded under

a. above, the landlord is not entitled to demand contributions towards the

buildings (or any other) insurance premium

c. Not having directly arranged the insurance as agent for the management

company, the landlord is not entitled to recover reasonable commission

under clause 7.2 of the flat leases

d. Quite apart from the buildings insurance being arranged by the landlord’s

insurance broker, acting on behalf of the landlord only, the insurance does

not comply with the requirements of the lease

e. Although the authorities cited by the applicant’s counsel might entitle the

applicants to reimbursement of the entirety of the insurance premiums

demanded by the respondent that is not how they have put their case, and

the respondent shall instead repay the management company, to credit

against each lessee’s service charge account, the commission received by

him in the period 2012/13 to 2019/20, assessed in the sum of £8,386.86

f. Subject to it insuring, as a minimum, against the “insured risks” listed in

clause 2.10 and such other risks as the landlord shall from time to time

reasonably require, it is a matter for the management company whether

to include plate glass cover. Failure to protect the structural integrity of

the building and its security against intruders at ground floor level might

prove counter-productive, as might the landlord’s refusal to pay affect the

reasonableness of his requirement that it do so

g. As confirmed by paragraph 8.4.2, the costs incurred by the company in

carrying out the services are subject to reimbursement, recoupment or

indemnity by the tenants (in common with all other tenants of the estate),

so that no residual expenses or liabilities shall fall upon the company. The

“estate” includes the shop units, so the liability of the flats lessees is less

than 100%

h-I. There is a lacuna in the flat leases whereby no mention is made of liability

for payment of service charges in respect of either unlet flats or the shops

on the ground floor. The shop lease included in the hearing bundle does

not mention the management company or its role in managing (and

insuring) the building at all, and requires service charges and insurance

premiums to be paid to the landlord. The tribunal has no power under the

1985 Act to intervene in non-residential leases. Resolution can be found

only by negotiation between landlord and company, by the bringing of

County Court proceedings against the landlord, or alternatively by the flat

lessees taking steps under Part 1 of the Leasehold Reform Housing and

Urban Development Act 1993, upon which professional advice is needed.

5. As the applicant management company is responsible for carrying out services,

the cost of which may be passed on by way of service charge, there is no way in

which the costs incurred by the landlord in connection with these proceedings (if

any, as he has not sought legal advice) can ever form part of the service charge.

The application made under section 20C of the 1985 Act is therefore unnecessary

and misconceived.

6. While the respondent’s case on insurance was always doomed to fail, as any legal

adviser could have told him after reading the lease, pursuing a meritless defence

is not of itself “act[ing] unreasonably in the bringing, defending or conducting

proceedings” which is deserving of an adverse costs order under rule 13 of the

Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013. This

application is also dismissed.

Relevant provisions in the lease

7. The sample leases in the hearing bundle are dated 31st October 2005 (flat 17) and

7th November 2005 (flat 5), and start at page [10]. They are tripartite in nature,

with [COMPANY_11] identified as “the landlord”, [COMPANY_3] as “the Company”, and (respectively) [NAME_13] and [NAME_32] as “the tenant.” The premises were demised for a term of 125 years from

1st January 2004 at a stepped annual rent of £175 for the first 25 years, rising for

each 25 year period thereafter to £350, £525, £700, and finally £875.

8. Some of the definitions set out in clause 2 are relevant. By clause 2.2 “the estate”

means :

...the land in respect of which the landlord is or was the registered

proprietor under the Title Number [SK219315] but excluding any areas

shown uncoloured on the plan forming the site of any substation gas

governor pumping station or similar installation.

9. By clause 2.3 “management areas” means :

...those parts of the estate the maintenance of which are the responsibility

of the Company including (but without prejudice to the generality of the

above) the common parts

However, this must also be read with clause 3.4, which states that :

The expression “the management areas” where the context so admits

includes any additional land and buildings in which the landlord has or

which during the term the landlord shall have acquired the freehold or

leasehold interest and which shall have been so constructed or acquired

to form part of the management areas

10. Clause 2.5 defines the “main structure” as including at 2.5.1 the “common parts”,

which are themselves defined in 2.6 as meaning :

...any entrance-hall lobby passageway staircase landing lifts (if any) and

meter cupboard and other ways and areas in the building and any pipes

of areas within the estate which are from time to time during the term

used in common by the tenants and the occupiers of the building or

persons expressly or by implication authorised by them

11. Clause 2.8 refers to “the plan” by reference to that annexed to the lease (except

that none is annexed to that in the bundle), and 2.10 defines the “insured risks”.

12. The tenant’s covenants appear at clause 5, and by 5.1 the tenant covenants to pay

the yearly rent to the landlord and the service charge to the company. By clause

4 (the demise) the service charge is payable by way of further or additional rent.

13. Clause 6 contains the landlord’s covenants, including at 6.2 to grant

...to the company in respect of the management areas all rights necessary

for it to observe and perform the covenants given by the company as set

out in clause 7.1 and 7.3 hereof. [NB NOT 7.2, concerning insurance]

14. By clause 7 the company covenants with the tenant and as a separate covenant

with the landlord to undertake three things. Clause 7.1 concerns management

obligations, 7.2 insurance of the building, and 7.3 reinstatement of the building

after damage by any of the insured risks.

15. At clause 7.1 the company covenants :

...to observe and perform its obligations contained in the Fifth Schedule

(for which the landlord authorises the company to exercise such rights as

shall be necessary for the carrying out of those obligations)

16. Clause 7.2 is crucial to the determination of this application. The company here

covenants :

To insure and keep insured the building or to procure the same through

the agency of the landlord or through such other agency as the landlord

shall from time to time specify in the joint names of the landlord and all

persons having any interest in the building against loss or damage by the

insured risks in some other insurance office of repute in the sum

equivalent to the amount at least of the full reinstatement value from time

to time of the building (including adequate amounts in respect of

professional fees) and the landlord shall be entitled to receive a proper

commission in respect of the insurance arrangement and shall also take

out and keep on foot in the said names a policy of insurance in any

insurance office of repute covering liability for injury to persons in the

building and shall make all the payments necessary for those purposes

within seven days after the same shall become payable and shall produce

to the tenant on reasonable demand at the tenant’s expense the policy or

policies of such insurance and the receipt for the same PROVIDED THAT

instead of effecting the said insurance in the joint names of the said

persons the company may ensure that the interests of the said persons are

noted on the relevant policies of insurance

17. The Fifth Schedule deals comprehensively with the service charge. Part A deals

with Definitions. “Services” means the services, facilities and amenities specified

in Part C, and annual expenditure” refers to the costs, expenses and outgoings

incurred by the company in respect of the services (as so defined) and also the

costs of additional matters set out in Part D. Paragraph 5 defines “service charge”

as being the annual contribution payable by the tenant under the lease, being

such proportion as shall be certified annually as being just and equitable by the

accountants and/or auditors to the company or its managing agents (if any).

18. Part B concerns the performance of the services by the company, calculation by

it of the annual service charge expenditure and the mechanism for demanding

payment of the lessees’ respective shares. Paragraph 8.4.2 explains that :

The intention of the company and the tenant in relation to the service

charge provisions in this lease is that all costs expenses and other

liabilities which are incurred by or on behalf of the company shall be the

subject of reimbursement recoupment or indemnity by the tenant (in

common with all other tenants of the estate) so that no residual liability

for any such costs expenses or liabilities shall fall upon the company.

19. Among the specific services to be performed by the company and listed in Part

C are :

10. Maintaining etc the main structure

14. Insuring against legal liability relating to all third party claims usually

insured against under public liability insurance...

15. Insuring the building against loss or damage by the insured risks in

accordance with clause 7.2

16. Insuring any risks for which the company may be liable as an employer of

persons working in or on the building and/or on the management areas

or as the owner of the building and/or the management areas or any of

them as it shall think fit.

20. Part D lists the Additional Items, the cost of which may be included in the annual

service charge levied by the company. They include :

22. Managing and administering the building, employing a firm of managing

agents and enforcing observance by tenants of flats of their covenants

23. Employing accountants

26. Administering the company itself and arranging for the calling of meetings

27. Paying the fees and disbursements paid to any managing agent appointed

by the company but if the company does not appoint such an agent it shall

be entitled to add a sum not exceeding 15% of any expenditure incurred

by the company under the provisions of this Schedule for administration.

Material statutory provisions

21. The long title of the Landlord and Tenant Act 1985 is

An Act to consolidate certain provisions of the law of landlord and tenant

formerly found in the Housing Acts, together with the Landlord and Tenant Act

1962, with amendments to give effect to recommendations of the Law

Commission

The Act concerns tenancies of “dwellings” or dwelling-houses”, which may

comprise the whole or part of a building.

22. Section 18 of the Act defines the expression “service charge,” for the tribunal’s

purposes, as :

...an amount payable by a tenant of a dwelling as part of or in addition to

the rent... (a) which is payable, directly or indirectly, for services, repairs,

maintenance, improvements or insurance or the landlord’s costs of

management... [emphasis added]

23. The overall amount payable as a service charge continues to be governed by

section 19, which limits relevant costs :

a. only to the extent that they are reasonably incurred, and

b. where they are incurred on the provision of services or the carrying out of

works, only if the services or works are of a reasonable standard.

24. The tribunal’s powers to determine whether an amount by way of service charges

is payable and, if so, by whom, to whom, how much, when and the manner of

payment are set out in section 27A of the Landlord and Tenant Act 1985; and so

are equally restricted to service charges payable by the tenant of a dwelling.

25. The first step in finding answers to these questions is for the tribunal to consider

the exact wording of the relevant provisions in the lease. If the lease does not say

that the cost of an item may be recovered then usually the tribunal need go no

further. The statutory provisions in the 1985 Act, there to ameliorate the full

rigour of the lease, need not then come into play.

26. Section 30A of the 1985 Act provides that the Schedule to the Act (which confers

on tenants certain rights with respect to the insurance of their dwellings) shall

have effect. The Schedule provides at paragraph 2 that where a tenant pays a

service charge which includes an element for insurance s/he may by notice in

writing require the landlord1 to provide a written summary of the policy, this to

be supplied within 21 days. By paragraph 3 the tenant may ask to inspect a copy

of the policy and, by paragraph 7, where damage has been caused and it is a term

1 For the purposes of the Schedule “landlord” includes anyone entitled to enforce payment

of the service charge

of the policy :

...that the person insured under the policy should give notice of any claim under

it to the insurer within a specified period, the tenant may, within that specified

period, serve on the insurer a notice in writing stating that it appears to him that

damage has been caused [...] and describing briefly the nature of the damage.

The hearing

27. The hearing, conducted by telephone, was attended by [NAME_4] (counsel) and

[NAME_19] on behalf of the applicants and by the respondent, [NAME_6], in person. The tribunal had before it a paper hearing bundle prepared by

the applicants comprising 226 pages, to which several missing documents such

as the tribunal’s directions had to be added. This bundle also included a sample

10-year commercial lease, granted by [NAME_6] to [COMPANY_21] and dated 7th

August 2012, for one of the ground floor shop units. [NAME_6] submitted his own

small bundle of documents, including his statement of case and a copy of the

current buildings insurance policy.

28. In a directions order dated 13th January 2020 Regional Judge Wayte had asked

the respondent, in his statement of case, to deal with a long list of specific

matters. [NAME_6] took that as an instruction to concentrate on the tribunal’s

questions and not those raised by the applicants, so he ignored the latter.

29. Directions specifically aimed at the applicant included requests for the provision

of comparable evidence from brokers, of the level of insurance, and the grounds

for objection to the premium, administration charge and commission. These are

typical for challenges to the landlord’s choice of insurer and/or insurance cover.

30. At the outset of the hearing the tribunal asked [NAME_6] whether he had sought

or obtained any legal advice concerning this application. He confirmed that he

had not. The tribunal noted the absence from the lease of the lease plan, which

might have assisted in explaining the layout of the building and the extent of the

management areas, and the lack of any information from insurance brokers as

to usual levels of commission, market rates for insuring a building of this size,

etc. Brokers had apparently invited the company to renew such enquiries nearer

to the policy renewal date in June.

31. [NAME_4] opened by saying that while the principal issue before the tribunal

was the question who was entitled under the lease to insure the building, and the

consequences of [NAME_6]’s actions in that regard after the resignation of the

company’s original managing agents, [NAME_22], a second issue related to the lack of

contribution by the shops or (should they be unlet) the landlord to the service

charge due for services performed by the company.

32. The tribunal was referred to a spreadsheet [69] created by [NAME_22] which showed

the respective net internal areas of each of the flats and also the shops, with their

relative percentage shares of service charge recorded against each unit. The

service charge was divided into two, A and B, one being divided between the flats

only and the other also contributed to by the shop units.

33. The issues raised by the applicants can be summarised as :

a. The fact that since 2008 the landlord had taken over – and, despite the

service of a solicitors’ letter in 2017 asking for his cooperation in doing so,

refused to yield to the company – responsibility for insuring the building,

a matter which came to a head after the making of a substantial claim for

escape of water in 2016 and imposition of stringent terms as to occupancy

b. The landlord’s failure to insure the building for its true reinstatement

value, putting at risk full recovery in the event of a claim

c. Failure, contrary to the lease, to insure in the joint names of the landlord

and all those having an interest in the building; alternatively to note their

interest on the policy

d. The landlord’s instruction to the broker not to deal with representatives

of the company, as evidenced by the broker’s email at [123]

e. The inclusion in the buildings policy of additional plate glass cover for the

ground floor shops, to which neither shops nor landlord contributed

f. The refusal of the landlord to disclose details of the insurance premiums

paid, so that the extent of his own commission could be calculated

g. The issuing of demands for payment of the premium, contrary to the lease

h. The landlord’s non-contribution, nor that of the shops, to the service costs

incurred by the company under the Fifth Schedule when managing the

entire building

34. [NAME_6] said that when he bought [NAME_2] he did what every property

owner does immediately on purchase, namely take out buildings insurance. He

considered that he had every right to do so, and – despite the three possible

options in clause 7.2 being explained to him – believed that his interpretation of

the clause was correct and entitled him not only to insure it as landlord but also

to receive commission for arranging the insurance. None came from the [NAME_33] that he uses; he simply topped up the cost of the premium to the same

figure each year, making it simpler for lessees by ensuring that the gross

premium remained the same. He charged flats two basic premium rates : £280

for the smaller flats and £330 for the duplex ones with balconies.

35. Asked about the apparent lack of candour, for example by invoicing lessees for

their contribution to the premium [112] without disclosing the premium paid and

the element retained by him, or by providing an insurance schedule [73] where

the premium, IPT and policy admin fee were all redacted, it was put to him by the

tribunal that if, under clause 7.2, he arranged the insurance on behalf of the

company then he was doing so as its agent and owed it fiduciary obligations,

including not to make a profit without his principal’s informed consent.

36. He was of the view that the applicants had been pestering the broker with queries

so instructed them only to deal with one individual, [NAME_23], described as

being an employee of the management company. Whether by that [NAME_6]

meant the managing agents, [NAME_25], was not clarified.

37. There was in evidence a property reinstatement valuation prepared in October

2015 on the instructions of the company’s current managing agents, [COMPANY_25]. That assessed the reinstatement

valuation, including allowances for professional fees and VAT, at £4,514,156.05.

By contrast, the respondent landlord valued the building for insurance purposes

at only £3,500,000; a figure which he regards as adequate, based entirely on his

own belief rather than any professional assessment.

38. [NAME_6] insisted that the insurance policy covered all windows in the building,

including the plate glass; although the windows in each flat are included in the

premises demised in the First Schedule, and therefore do not form part of the

main structure as defined. The applicants insisted that plate glass cover was

additional.

39. Perhaps prompted by the tribunal’s observation that it had no jurisdiction to deal

with service charge issues in non-residential leases, and that such provisions in

the shop leases were inconsistent with the wording of the earlier flat leases, [NAME_6] did not have anything positive to say in response to the applicants’ claim

that he should make a contribution to the company for and on behalf of the shop

units, let or unlet.

40. In his closing submissions [NAME_4] referred the tribunal to the table at [158].

These figures had been obtained by the applicants, based on the total amounts

invoiced by the respondent to the flat lessees (on the top line) and subtracting the

insurance premiums (below the first thick line) disclosed by the respondent in

item 2 annexed to his statement of case. He submitted that the “admin fees” (3rd

line) apparently charged by the broker were high, although he accepted that the

applicants had adduced no evidence on that issue.

41. He referred the tribunal to the parties named in the two policies before it, that for

2015/16 [73, @ 76] and 2019/20 [item 4 annexed to the respondent’s statement

of case], and argued that the insurance failed to comply with what was required

by clause 7.2 in the lease. Although he accepted that the applicants had drafted

their case on the basis that they sought repayment of the “commission” retained

by [NAME_6] he cited two cases which justified an order for reimbursement of the

entire premiums. These two cases, decided by the Lands Chamber of the Upper

Tribunal, were [NAME_8] v [NAME_9] Ltd2 and [NAME_10] v 180 [COMPANY_35]3

42. [NAME_4] further argued that the landlord was also non-compliant with the

terms of the latest policy concerning unoccupancy [respondent’s item 5 – CP22],

and thus put the cover at risk, by failing to inspect the interior and exterior of

each unlet shop unit at least weekly, and to maintain a record of each inspection.

[NAME_6] said that a caretaker inspected the exterior for him, then that

he looked inside as well, and that he as landlord maintained a record at his home

in Upminster. It was put to him that those inspecting premises, whether to prove

that public toilets have been cleaned or for some other purpose, usually signed

a sheet or file to demonstrate that they had done so. How could the caretaker do

this if [NAME_6] kept the record of inspections at his home? He confirmed that

there was no signed record.

Discussion and findings

43. The obligation to arrange buildings and other insurance under the lease is quite

a straightforward matter of construction. Clause 7.2 requires the company first

to insure the building, and secondly to insure against public liability. Insurance

2 [2017] UKUT 497 (LC)

3 [2012] UKUT 245 (LC)

of the building can be arranged in one of three ways :

a. By the company directly

b. By the company through the agency of the landlord, or

c. By the company through such other agency as the landlord shall from time

to time specify.

Nowhere is the landlord granted authority to arrange the insurance itself, on its

own behalf.

44. It is therefore open to the company to bypass the landlord entirely and arrange

the insurance, although Financial Conduct Authority regulations concerning the

placing of insurance contracts would in practice prevent that. Akin to the

provision in paragraph 27 of Part D of the Fifth Schedule, were the landlord to be

asked to arrange the insurance (again in practice impossible unless the landlord

were authorised to conduct insurance business) then he could charge a proper

commission for his efforts. The third, and in effect only realistic, option these

days is to ask an insurance intermediary specified by the landlord (or any, if none

is specified) to arrange the insurance. For this the intermediary would expect

payment either by the insurance company with which the business is placed or

by way of a fee or commission agreed with its client. The client is the company;

not the landlord.

45. Except under option b. above the landlord would not be entitled to commission,

and even if he were then it has to be a “proper” commission. As agent, he would

owe fiduciary duties to his principal. One of these is not to make a profit at his

principal’s expense. In a leading case, [COMPANY_26] v

Mothew,4 Millett LJ stated :

A fiduciary is someone who has undertaken to act for or on behalf of another in

a particular matter or circumstances which give rise to a relationship of trust and

confidence.

He went on to say :

The distinguishing obligation of a fiduciary is the obligation of loyalty. The

principal is entitled to the single-minded loyalty of his fiduciary. This core

liability has several facets. A fiduciary must act in good faith; he must not make

a profit out his trust; he may not act for his own benefit or the benefit of a third

person without the informed consent of his principal.

[emphasis added]

46. If [NAME_6], who in any case did not regard himself as an agent but as landlord

acting on his own behalf, declined to reveal to the lessees how much of the

amount demanded by him was their share of the premium plus tax demanded by

the insurer and how much his own secret profit then how can this be regarded by

him as “proper” or the result of the lessees’ informed consent?

47. What is astounding in this case is the fact that the company, which at paragraph

6 in its statement of case wrongly but depressingly refers to itself as “dormant”,

allowed the landlord to get away with insuring the building without effective

protest for so long. Despite a letter written on its behalf by [NAME_27] in

May 2017 this application was not issued until two and a half years later.

4 [1998] Ch 1 at 18

48. The company is not dormant. It has appointed managing agents to act on its

behalf, and will no doubt take advice from its professional property managers,

but decisions on who to insure with, what to insure (subject to covering all the

risks mentioned in the lease and such others as the landlord may reasonably

require), the setting of reserve funds, the carrying out of major works and the

approval and signing of annual service charge and company accounts are the

responsibility of the company acting by its directors and/or its members at

regular meetings.

49. The company is therefore free to arrange the various types of insurance provided

for in clause 7.2 and Part C of the Fifth Schedule, and it alone is entitled to seek

payment for this as part of the service charge for which it alone is responsible.

50. What then are the consequences of the landlord arranging insurance which is

non-compliant with the lease, as it was neither taken out in joint names nor had

the names of all those interested (which principally means the lessees and their

mortgagees, not just the company) noted on the policy schedule?

51. In [NAME_10] v [ADDRESS] Co Ltd5 HHJ Huskinson held, at

[15] that :

...I consider that to place insurance in the name of the lessor, with no mention

of the name of the lessee and with the lessee's interest being dealt with merely

by the general interest clause, is not the same thing as placing insurance in the

joint names of the lessor and lessee. I am confirmed in this view, ie that the

intention of the parties under clause 4(ii) was that something more was required

than merely the appellant's interest being dealt with under a general interest

clause, by the closing words of clause 4(ii) which contemplate that the lessor will

allow a note of the interest of any mortgagee to be endorsed upon the policy.

As the insurance had not been placed in accordance with the provisions of the

lease during the years 2006/07 to 2009/10 he concluded that the insurance

placed by the respondent was not in accordance with clause 4(ii) and that the

appellant was not liable to pay any part of the premiums incurred by the

respondent for those years.

52. [NAME_10] was not mentioned in [NAME_8] v [NAME_28] the

Deputy President, Martin Rodger QC, came to a similar conclusion where the

lease required the lessees to take out buildings insurance for their own demised

premises, which included the external walls of their part of the main structure,

in joint names. The lease entitled the lessor to insure the common parts only, and

to recover an apportioned part from each lessee under the service charge. Where

the lessor was not satisfied that all the lessees were insuring in the joint names

of lessor and lessee and proceeded instead to insure the whole building, the

Deputy President posed the question :

...whether, having procured insurance which does not correspond to the

description in clause 3(vii) [the lessor] is nevertheless entitled to recoup the cost

from the appellants. The effect of the proviso is that the lessor's entitlement to

recoup the cost of insurance is subject to the condition that the insurance be in

accordance with the agreed specification. It is a question of construction of the

clause whether any departure from that specification was intended to be fatal to

5 [2012] UKUT 245 (LC)

6 [2017] UKUT 497 (LC)

the right of recoupment. If, as [NAME_29] argues, the specification was

sufficiently important so that any departure from it by the lessee, such as by

failing to insure in joint names, would be sufficient to trigger the proviso, it must

follow in my judgment that full compliance with the specification is an

indispensable condition of the lessor's right of recoupment.

As the lessor was entitled to insure the common parts the Deputy President was

prepared to make an apportionment, allowing it to retain only a small part of the

cost of the insurance of the entire building.

53. These are both Upper Tribunal decisions and, despite the apparent injustice of

allowing the tenants to recover the insurance premiums even though cover had

been provided (and perhaps claims made), they would be binding on this tribunal

but for [NAME_4]’s concession that the claim had been put only on the basis of

recovery of the improperly demanded commission. Taking the table at [158] as

the basis of assessment the tribunal, in the absence of any actual premium

receipts or schedules for all of the years in question, takes the row marked

“Difference” (below the second thick line) as the measure of the commission

improperly retained by the landlord, [NAME_6], for the period from 2012/13 to

2019/20. The sum of the figures appearing in that row is £8,386.86, and that is

repayable by [NAME_6] to the company and divided by the two rates levied by the

landlord before being credited against the respective flat lessees’ service charge

accounts.

54. The question whether to include cover against plate glass damage directly affects

the shops, and under the sample lease this would be paid by the commercial

tenant. The problem arises where, as is presently the case, several units lie unlet.

The landlord has declined to make any contribution from his pocket. Under the

provisions of the flat leases the landlord can “reasonably require” the company

to insure other risks than those specifically mentioned in the lease. If he does

not, is it wise for the company not to protect itself against damage which could

adversely affect the structural integrity and security of the building? On the other

hand, if the landlord does require plate glass cover but refuses to enable the

company to recover the cost from those that directly benefit, is he reasonably

requiring it to do so? On this both parties should apply their minds and seek

professional advice.

55. The management scheme devised by the respondent’s predecessor in title as

landlord was that the lessee-owned and managed company be created to run the

building and manage all required services, levying an annual service charge to

cover all necessary insurance as well. The company was given in respect of the

management areas all rights necessary for it to observe and perform its covenants

concerning management and reinstatement of the building. The costs were to be

recovered from the flat lessees and all tenants of the estate. These would include

the tenants of shop leases yet to be granted. All the company’s costs would be

divided, as per the [NAME_22] apportionment, amongst all occupiers and the company

would not suffer a loss (except from non-payers who could be pursued at law).

56. Unfortunately, when [NAME_6] came to grant 10-year business leases of the shop

units he ignored the company and its rights and management obligations

entirely, arranging that the landlord would insure and carry out the services. As

the obligation to manage the entire building, and the right to recoup its costs, had

already been agreed between landlord and company it is arguable that [NAME_6]

has derogated from his predecessor’s grant, causing the company loss, but that

is a matter which, should it be necessary, only the County Court can consider as

this tribunal has no jurisdiction to impose variations in non-residential leases.

57. As it was agreed at the hearing that the percentage net internal area of the shop

units is much less than 25% (10.98% according to the [NAME_22] spreadsheet at [69])

the company, if appointed as the flat lessees’ nominee purchaser under Part 1 of

the Leasehold Reform Housing and Urban Development Act 1993, could resolve

the entire matter by acquiring the freehold, becoming landlord of the shop units,

and thus acquire the right under the business leases to recover contributions to

the service charge, including insurance premiums. But that is all for another day,

if at all.

58. At the conclusion of the hearing [NAME_4] rather surprisingly applied for an

order under section 20C of the 1985 Act, preventing the landlord’s costs of the

proceedings from being taken into account in the calculation of any service

charge payable by the applicants in this or any subsequent year. Although the

box was ticked on the application form this was surprising because the service

charge costs and expenses under this lease are controlled by the company, not the

landlord. [NAME_6] has sought no legal advice and has not been represented, but

even if he had there is no provision in the lease entitling him to recover his costs

by way of service charge. The application is unnecessary, and no order is made.

59. [NAME_4] also applied for his clients’ costs under rule 13(1)(b) of the Tribunal

Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 , on the grounds

that [NAME_6] had acted unreasonably in defending or conducting proceedings.

[NAME_6]’s case was hopeless he was entitled to argue it, and he had

done nothing by way of bringing spurious applications or engaging in other time

wasting exercises so as to increase costs unnecessarily. [NAME_4] briefly sought

to argue that the landlord had ignored a letter before action, but the letter from

[NAME_31] dated 21st October 2019 [155–157] is headed “Letter of Claim”, refers

to the CPR and the Practice Direction on Pre-Action Protocols and to the duty to

consider ADR, and refers entirely to seeking disclosure of the insurance policy

and associated documents. It was not a letter that even hinted at a tribunal claim

such as this.

60. This is essentially a “no costs” jurisdiction, where many parties are unrepresented

and have limited grasp of the rules and procedure, and something rather more

is required than arguing a poor case to justify the tribunal imposing a potentially

heavy financial penalty on a party simply asking – perhaps naïvely – to be heard.

Dated 12th May 2020

Graham Sinclair

First-tier Tribunal Judge