Landlord and tenant – Service Charges – Insurance – Appellant leaseholders being obliged to insure flat in own and respondent landlord’s joint names – In event of default respondent entitled to insure and recoup cost – Respondent insuring whole of building under single policy in sole name – Whether respondent required to insure in joint names – Appeal allowed
Albion Court was a small residential estate at Albion Road, Sutton, comprising 27 flats in three blocks set in communal grounds. The flats were all let on long leases granted in the early 1960s which contained unusual provisions relating to insurance in joint names. Since at least 2015, the flats had been doubly insured. The individual appellant leaseholders had complied with obligations in their leases to insure their own flats against fire and other usual risks, while the respondent freeholder had arranged insurance against the same risks for the whole estate, including both the structure and common parts of the blocks themselves and of the individual flats. An issue arose whether the respondent was entitled to recover from the appellants the whole of the cost it had incurred in insuring the estate.
The FTT dismissed an application under section 27A of the Landlord and Tenant Act 1985 brought by the leaseholders of nine of the flats at Albion Court in which they sought a determination that they were not obliged to contribute to the landlord’s costs of insuring their individual flats. The FTT found that the appellants were liable to pay the full sum claimed for insurance despite having already insured their own flats. The appellants leaseholders appealed.
Held: The appeal was allowed.
(1) The FTT’s conclusion, that the reasonable cost of insuring the common parts and not the individual flats was the same as the cost of insuring the whole structure, was counterintuitive and predicated entirely on its acceptance of the respondent’s case that it was impossible to procure such insurance. The basis of that case was evidence in the form of three short emails from insurers declining to quote. The appellants were dismissive of that evidence but the FTT did not evaluate it or, more importantly, make any finding of fact or assessment of the evidence concerning the previous basis of insurance. That evidence was limited, but it needed to be addressed. Without an evaluation of the appellants’ case and findings of fact, the FTT’s conclusion that the common parts could not be insured separately from the flats, was not one which was properly open to it. The FTT’s decision that the leaseholders were liable to pay the full amount claimed was based on its determination that that amount represented the reasonable cost of insuring only the common parts, which the respondent was entitled to do under clause 3(vi) of the lease. That decision had to be set aside.
(2) A proviso to clause 3(vii) gave the respondent the right to place its own insurance and recoup the costs from the leaseholder “if the lessee shall at any time fail to keep the demised premises insured as aforesaid”. The only precondition to the lessor’s right was therefore that the leaseholder should have failed to insure in the manner required by clause 3(vii). Assuming it was possible, though unusual, to insure in joint names it was clear that the appellants had not complied with their obligation under cl ause 3(vii). Even if it were not possible to insure in joint names, the appellants would still have failed to comply with their obligation. In either event the proviso to clause 3(vii) would be satisfied and the respondent would be entitled to insure because the appellants had not kept the demised premises “insured as aforesaid” ie insured in joint names. Despite the appellants having obtained cover for their own flats, including the structural parts of the buildings which enclosed them, the respondent was entitled to obtain insurance for the same structure at the appellants’ expense, but solely because the appellants’ insurance was not in joint names.
(3) The tribunal’s task was to identify the intention of the parties by reference to what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean. In this case, the object of the primary obligation was comprehensive insurance of each flat in joint names at the expense of the individual lessee. The effect of the proviso was that the lessor’s entitlement to recoup the cost of insurance was subject to the condition that the insurance be in accordance with the agreed specification. On normal principles where one party had a right which was conditional on the occurrence of an event (such as the making of a payment), the condition had to be fully satisfied before the entitlement accrued. The respondent’s entitlement to insure at the appellants’ expense conferred a benefit on both parties, in that the premises in which they both had an interest became insured in their joint names, which was an advantage to them both. However, the respondent 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 respondent did not have a contractual right to recover the cost of insuring the flats from the appellants. Its only entitlement was under clause 3(vi) to recover, through the service charge, the cost incurred in insuring the common parts: Arnold v Britton [2015] EGLR 53 applied
(4) If the lessor chose not to take out insurance in accordance with the clause, it could nevertheless rely on its contractual remedies in the event of a breach by the lessee of its obligation. However, the only claim which had been before the FTT was the contractual claim to recoup the cost of insurance under the proviso in clause 3(vii). There was no claim for damages, nor would such a claim have been within the jurisdiction of the FTT.
The appellants appeared in person; Jonathan Wragg (instructed by PDC Law) appeared for the respondent.
Eileen O’Grady, barrister
To read a transcript of Atherton and others v MB Freeholds Ltd, click here
