Assethold Limited v Hoye and Fox  UKUT 173 (LC)
5th July 2022
Richard Granby represented the successful appellant in an appeal to the Upper Tribunal against a decision that the costs of insurance were not recoverable by the landlord by way of service charges.
The leaseholders had applied to the First Tier Tribunal for a determination as to whether they were obliged to pay certain costs incurred by their landlord in respect of a building. The landlord was represented by its managing agent before the FTT.
The building was a small block, a neighboring house had an easement allowing the occupants passage though the building.
The lease required the landlord to insure the building against the usual risks. As is often the case in long lease the cost of insurance was dealt with separately to other service charges as ‘Insurance Rent’
The lease required the landlord to serve on the tenant a notice giving full particulars of the gross cost of the insurance premium payable in respect of the Building (after any discount or commission but including IPT) and stating the date by which the gross premium is payable to the insurers and the Insurance Rent payable by the tenant including how the Insurance Rent was is calculated and the date on which it is was payable.
The landlord demanded service charges in respect of the cost of insuring the building as part of its ordinary service charge demands, while these demands identified the gross premium they did not state the date when the premium was payable to the insurers or broker or how the premium was calculated.
At first instance the leaseholders successfully argued that the landlord could not recover the costs of insurance as it had not complied with the terms of the lease in serving a notice in respect of the gross premium as the service charge demands had not contained all the specified information. The FTT treated such a notice as a precondition of payment.
The leaseholders were also successful in alternative that had the costs of insurance were not recoverable because the insurer had not been notified of the easement – the leaseholders evidence was that they doubted the insurer had been notified, the evidence of the managing agent was that he thought the insurer had been notified. The FTT found as a fact that the insurer had not been notified on the basis there was no evidence to show it had been and that this could have led to repudiation of the policy, the FTT accordingly held that the cost of insurance was not reasonable and accordingly not payable.
The landlord successfully appealed to the Upper Tribunal. The Upper Tribunal, Her Honour Judge Cooke, held that:
The FTT’s conclusion that the costs of insuring the building were not contractually payable was irrational – the requirement to serve a notice was not a pre-condition of payment it was an obligation enforceable by way of an injunction or a claim for damages (although it was hard to see what damages there could be).
Further the FTT had no material before it on which to base a conclusion that the insurance was not payable, the conclusion that the insurer had not been informed was speculative and moreover the FTT had further speculated that the sharing of access was material to the insurance policy when it had no proper basis for concluding that the insurance was likely to be repudiated or reduced.
It is not unusual for landlord not to comply with every provision in a lease relating to service charges, these are often complex and onerous particularly when considered against the modest sums often in issue. Leaseholders must be careful to identify the difference between breaches of the requirements of the lease relating to service charges that do not invalidate the demands and those that do, unless a lease contains very clear words that a requirement is a precondition of payment then it won’t be a condition president unless such a term is necessary for commercial efficacy (Brickfield Properties v Georgiades  UKUT 118 (LC);  L&TR 21). In practice such a term will rarely if ever be applied in a professionally drafted lease.
Further it is not enough for leaseholders (or the FTT) to speculate as to the practical effect of an alleged failure by the landlord, claims that the landlord has failed in some way, and the effect of that failure must be properly supported by evidence.
This decision is some comfort to landlords who fear an unduly skeptical approach from the FTT – there is a limit to the extent to which hypothetical problems, or technical non-compliance with a lease, will frustrate a landlord’s apparent contractual right to recover costs. For tenants the lesson is that concerns about the effect of the landlord’s actions should be backed with evidence and that the FTT will not fill the gaps in a leaseholder’s case by assuming the worst.
The decision can be found here.
Richard was instructed by Lorraine Scott, partner in the specialist landlord and tenant solicitors firm, Scott Cohen Solicitors.