Landlord’s block policy insurance costs forming part of service charge successfully challenged

United Kingdom

The case of Cos Services Ltd v Nicholson and Willans [2017] UKUT 382 (LC) (3 October 2017) is a useful reminder to landlords of residential property that a routine renewal of a block insurance policy will not necessarily be a service charge “reasonably incurred” for the purpose of s19(1) of the Landlord and Tenant Act 1985.

The leaseholders in one of the flats in a block known as Chiltern Court, in Harpenden, challenged insurance premiums charged by the freeholder of the block. The principal issue before the Upper Tribunal was whether the premiums claimed by the landlord had been “reasonably incurred”.

The Tribunal held that the burden was on the landlord to satisfy the relevant tribunal on the balance of probabilities that the costs in question had been reasonably incurred. Adopting a two stage process the Tribunal considered (i) whether the landlord acted rationally in its decision making process and (ii) the outcome of that decision i.e. whether the sum being charged was, in all the circumstances, a reasonable charge. The Tribunal held that whilst it is open to any landlord with a number of properties to negotiate a block policy covering the entirety, or a significant part, of its portfolio, it must also satisfy the Tribunal that the invocation of a block policy has not resulted in a substantially higher premium. The landlord should be able to explain the process by which a particular policy and premium have been selected, with reference to the steps taken to assess the current market.

Noting the discrepancy between premiums charged under the landlord’s block policy and the premium obtainable from other insurers on the open market, the Upper Tribunal dismissed the landlord’s appeal and held that the insurance premium costs re-charged by the landlord were not reasonably incurred.