Automated Summary
Key Facts
This case concerns leaseholders' right to challenge service charges for buildings insurance under section 27A of the Landlord and Tenant Act 1985. The Upper Tribunal (Lands Chamber) allowed an appeal against a decision to strike out an application by leaseholders of Boswell Court and Hitherwood Court (London NW9) challenging the reasonableness of insurance charges. The Tribunal found that the First-Tier Tribunal was wrong to conclude the application had no prospect of success, as the leaseholders had standing to challenge charges payable to the management company, which was a 'landlord' under section 30 of the Act. The case involved a tripartite lease structure where the management company (controlled by leaseholders) was responsible for procuring insurance from an insurer nominated by the landlord.
Issues
- Whether leaseholders have standing to bring a section 27A application against the landlord regarding insurance charges, when the service charges are payable to a management company rather than directly to the landlord.
- Whether insurance charges constitute 'relevant costs' under the Landlord and Tenant Act 1985, which would allow leaseholders to challenge their reasonableness through section 27A proceedings.
Holdings
The Upper Tribunal held that the First-Tier Tribunal was incorrect in striking out the leaseholders' application under section 27A of the Landlord and Tenant Act 1985. The Tribunal determined that the leaseholders' application had a reasonable prospect of success and that the FTT was wrong to dismiss it. The Upper Tribunal remitted the matter to the First-Tier Tribunal for determination, allowing the leaseholders to challenge the reasonableness of the service charges for insurance. The Tribunal also refused permission to appeal against the FTT's decision to remove E & J Estates as a respondent and to refuse the leaseholders' application to add the landlord's insurance broker as a further respondent.
Remedies
The Upper Tribunal remitted the matter to the First-Tier Tribunal for determination, reversing the decision to strike out the leaseholders' application. This allows the leaseholders to seek a determination of the reasonableness of the insurance service charges under section 27A of the Landlord and Tenant Act 1985.
Legal Principles
- The Tribunal applied the test established in Bandar Property Holdings Ltd v J S Darwen (Successors) Ltd, which holds that a landlord is not required to shop around for the cheapest insurance premium if they are using an insurer of 'repute.' The test is whether the premium was paid in the ordinary course of business as between the insurer and the landlord. The Tribunal emphasized that the fact that a lower premium might be available elsewhere does not prevent the landlord from recovering the premium paid, unless it can be shown that the transaction was outside the normal course of business.
- The Upper Tribunal held that under section 30 of the Landlord and Tenant Act 1985, the term 'landlord' includes any person who has a right to enforce payment of a service charge. This means that a management company, which is entitled to recover service charges from leaseholders, can be considered a 'landlord' for the purposes of service charge provisions. This interpretation was crucial to the case as it established the management company as a proper respondent in proceedings under section 27A.
- The Tribunal interpreted 'relevant costs' under section 18(2) as costs incurred or to be incurred by or on behalf of the landlord. In this case, the costs incurred by the management company (the 'landlord' for service charge purposes) in procuring insurance were deemed relevant costs. The Tribunal clarified that the insurance charges were relevant costs even though they were not incurred on behalf of the freeholder (RMB), because the management company was also a 'landlord' under section 30.
- Section 27A of the Landlord and Tenant Act 1985 allows leaseholders to apply to the First-tier Tribunal for a determination of whether a service charge is payable and the amount payable. The Tribunal held that the leaseholders' application was not properly struck out, as they had a reasonable prospect of success. The Tribunal emphasized that section 27A is drafted in deliberately wide terms to minimize jurisdictional disputes, and that leaseholders can bring applications under this section against the proper parties, which in this case included the landlord (RMB) as well as the management company.
Precedent Name
- Williams v Aviva Investors' Ground Rents GP Ltd
- Cinnamon Ltd v Morgan
- Berrycroft Management Co Ltd v Sinclair Gardens Investments (Kensington) Ltd
- Bandar Property Holdings Ltd v J S Darwen (Successors) Ltd
- Havenridge Ltd v Boston Dyers Ltd
- Gateway Holdings (NWB) Ltd v McKenzie
- Oakfern v Ruddy
Cited Statute
- Commonhold and Leasehold Reform Act 2002
- Landlord and Tenant Act 1985
- Landlord and Tenant Act 1987
Judge Name
Martin Rodger KC
Passage Text
- The unusual feature of this case, and the principal ground on which Mr Allison, on behalf of the respondents, sought to uphold the FTT's decision, is that the leaseholders' application under section 27A did not identify the person to whom the service charge is payable, i.e. the management company, as a respondent.
- There is no doubt that the comparison which the leaseholders are able to make in this case between the rate of increase of their insurance premiums since 2019, and the rate of increase in premiums payable by leaseholders of similar properties on the same estate in blocks owned by different freeholders, is striking and calls for an explanation. In my judgment the FTT was wrong to strike the application out, and I remit the matter to it for determination.
- The limitation, in my judgment, can best be expressed by saying the landlord cannot recover in excess of the premium that he has paid and agreed to pay in the ordinary course of business as between the insurer and himself. If the transactions arranged otherwise than in the normal course of business, for whatever reason, then it can be said that the premium was not properly paid, having regard to the commercial nature of the leases in question...