It is generally recognised that it is not practical for individual tenants to insure their own units if a building is in multiple occupation. However, the leases in Atherton v MB Freeholds Ltd [2017] UKUT 497 (LC) envisaged that each tenant would insure his or her own flat, including the structural parts surrounding it and, if the building were to be destroyed, each tenant would make his or her own claim and rebuild his or her premises under the direction of the landlord’s surveyor. Consequently, the leases required the tenants to insure their flats with an approved insurer in the joint names of the landlord and the tenants – and gave the landlord the right to recover the cost of insuring the common parts, as well as the cost of any insurance put in place to remedy any tenant’s failure to insure in accordance with the leases.
Following the sale of the freehold, the cost of the insurance included in the tenants’ service charges increased sharply. For example, the budgeted figure for insurance in the year ending 24 March 2016 had been £1,721, but the total cost incurred was actually £6,162. And, in the following year, the cost was £8,367.
It soon became apparent that the new landlord had insured the whole of the building. And, when challenged, it claimed that it had been entitled to do so because most of the tenants appeared not to have been insuring their flats in the joint names of themselves and their landlord. Instead, they had had the landlord’s interest noted on their insurance policies.
Consequently, the Upper Tribunal had to decide whether the tenants had complied with their insuring obligations. And, if not, did the insurance effected by the landlord comply with the provisions in the leases? The tribunal’s answers to both these questions was “no”.
The tribunal noted that the landlord had not suggested that the tenants were in breach of their obligations to use approved insurers – and considered that the landlord had been right not to do so. The landlord had known the identity of the tenants’ various insurers and had not objected to their suitability. Furthermore, the landlord could not have refused to approve an insurer on capricious grounds, or with a view to engineering a situation in which a tenant could be said to be in breach of its lease.
Nonetheless, it was clear that the tenants had failed to comply with their obligations because they had not insured in the parties’ joint names. Consequently, the landlord had been entitled to insure the demised premises under each individual lease, and to recover the cost from the defaulting tenants.
However, the landlord had fallen into exactly the same trap. It had insured the whole of the building under a single policy in its sole name – and not in joint names, as the leases had envisaged. Consequently, the landlord did not have a contractual right to recover the cost of insuring the flats from its tenants. The tribunal acknowledged that the landlord might have had a claim for damages instead – but that was not what the landlord was claiming and such a claim would not have fallen within the tribunal’s jurisdiction.
Allyson Colby is a property law consultant