Landlord and tenant — Covenant to insure — Landlord and Tenant Act 1987 — Whether implied term that sum charged by insurer should not be unreasonable — Whether cost of insurance exceeds what is reasonable
Following the
development of some 14 purpose-built blocks of flats, the flats were sold on
long leases and the reversions were sold to the respondent landlord. The
original developers created the appellant management companies and the leases
imposed a requirement that the management companies should insure the buildings
for such sums and through such companies as the landlord may direct. The
lessees covenanted both with the reversioner and the management company to pay
as part of the management charge the appropriate proportion of the insurance
cost. When the present landlords acquired the reversions, it required the
management companies to insure with Commercial Union through an associated
company, C Ltd. The premium rate was considerably higher than the rate obtained
by the original developers. The landlord paid the premiums and sought to
recover the sums from the management companies. The agents for the management
companies contended that the previous insurance arrangements were acceptable to
the lessees and there was no justification for a change of insurer. The
applications of the management companies and an individual tenant, seeking an
order under sections 19 and 30A of the Landlord and Tenant Act 1985 that
expenditure on insurance were not relevant costs reasonably incurred, was
dismissed in the court below. The management companies appealed.
covenants between the management companies and the landlord, and between the
lessees and the appropriate management company, that the sum charged by the
nominated insurer should not be unreasonable, or that a tenant should not be
required to pay a substantially higher sum than he could himself arrange with
an insurance office of repute. The right of the landlord to nominate the
company and the agency for insurance was unqualified. The insurance rates
proposed by Commercial Union were not other than market rates and the fact that
the management companies could have secured lower rates was beside the point.
(2) Notwithstanding the covenants by the lessees to pay service charges to the
management companies, the landlord was landlord for the purposes of the
Landlord and Tenant Act 1985. However although the insurance charges are
incurred by the lessees as part of the service charges, they are not to be
regarded as incurred by or on behalf of the landlord and are therefore not
‘relevant costs’ within the meaning of section 18 of the 1985 Act. The trial
judge had decided that the amounts quoted by Commercial Union were neither
unreasonable nor excessive. Quarere whether, if the terms of the leases
had given the right to nominate the insurer, the fact that the management
companies undertook to insure on behalf of the landlords and the lessees would
take the provisions of the leases outside para 8 of the Schedule to the 1985
Act.
The following
cases are referred to in this report.
Bandar
Property Holdings Ltd v Darwen (JS) (Successors)
Ltd [1968] 2 All ER 305; (1968) 19 P&CR 785
Finchbourne
Ltd v Rodrigues [1976] 3 All ER 581; [1976]
1 EGLR 51; (1976) 238 EG 717, CA
Havenridge
Ltd v Boston Dyers Ltd [1994] 2 EGLR 73;
[1994] 49 EG 111
Tredegar
(Viscount) v Harwood [1929] AC 72
This was an
appeal by Berrycroft Management Co Ltd and others from a decision of Judge Paul
Baker QC, who had dismissed the appellants’ applications for the determination
of certain questions arising under leases of flats in buildings owned by the
respondent, Sinclair Gardens Investments (Kensington) Ltd.
David Halpern
(instructed by Taylor Vinter, of Cambridge) appeared for the appellants; David
Neuberger QC and Nicholas Dowding (instructed by Malthouse Chevalier)
represented the respondent.
Giving
judgment, Beldam LJ said:
These 14 appeals require the court to consider the extent of the landlord’s
right under the relevant provisions of the applicants’ leases to direct the
insurance of property held by them and the liability of the tenant to pay
charges for such insurance. Further to consider the effect on those rights and
liabilities of the Landlord and Tenant Act 1985, as amended by the Landlord and
Tenant Act 1987.
The appellants
in each case are a management company and a representative tenant from an
estate consisting of a block of flats and its surrounding grounds.
Facts
The
applications relate to the rights and obligations of parties to leases of flats
in purpose built blocks.
When a block
of flats or other large development was being built, completion of the sales of
the individual properties did not normally take place until the properties were
finished. Depending upon the size of the development and the number of
properties, there was bound to be a period when only some of the properties
were sold and occupied and others were waiting to be finished. There are
usually common parts of the development which have to be maintained by the
developer until the development is complete. It is a common practice to provide
for the maintenance of the common parts and the unoccupied portion of the
development by the creation of a management company. Until the development is
complete the management company is controlled by the developer, who provides
its directors. As the individual properties are sold, the purchasers are
required to subscribe for a share in the management company. When the
development is complete, control of the management company is handed over to
the purchasers who in effect then become responsible for the common parts of
the development and the other obligations which until then had been carried out
by the management company on behalf of the developers. Where the properties
comprising the development are held on long leases as in the present case, the
ordinary relationship between the developer who is the lessor or landlord and
the purchaser who is the lessee or tenant is complicated by the introduction of
the management company to perform some of the covenants which would normally be
entered into either by the landlord or by the tenant.
After
completing a development of leasehold properties, the developer as a rule
assigns the reversion to an investment company. It is not difficult to see that
even with the most carefully drafted leases the introduction of a management
company charged with the performance of certain of the covenants could give
rise to questions of some difficulty in adapting the rules of privity of
contract and estate between the landlord, the management company and the
tenant.
In the present
case the applicants did not raise any questions of privity and the questions
for the court depend upon the construction of the terms of the leases and upon
the application to the relationship of landlord and tenant in these
circumstances of the Landlord and Tenant Act 1985 as amended by the Landlord
and Tenant Act 1987.
Eleven of the
14 developments to which the applications related, were carried out by Rialto
Homes plc (Rialto) and three by Tarmac Ltd (Tarmac). On December 31 1992 Rialto
sold the reversions of 10 of the developments to the respondent, Sinclair
Gardens Investments (Kensington) Ltd (Sinclair). The reversions to the
development at the Vale, Cricklewood, the 11th of Rialto’s developments, were
sold to Sinclair on February 10 1993. Tarmac sold the reversions of its three
developments to Sinclair on January 22 1993. In every case there was a
management company which by the time of the sale of the reversions was under
the control of the tenants of the developments.
Many tenants’
associations and management companies employ agents to carry out the functions
entrusted to the management company and one company which specialises in
running management companies is Corporate Property Management Ltd (CPM), which
administers 450 residents’ management companies with a responsibility for some
17,000 flats and houses. CPM in fact was engaged by 12 of the management
companies in the present applications. The questions which have arisen in these
applications arise from the requirements in the leases that the management
companies shall insure the buildings comprised by the flats.
During the
construction of the development, insurance of the building was arranged and
maintained by the developers. Rialto insured the buildings in their
developments with Sun Alliance, transacting the business through brokers, CE
Heath. As the construction of each development was completed and the flats
became ready for sale, the proposal for insurance was made by Rialto in the
joint names of itself and the relevant management company. The period of
insurance was a calendar year and Rialto paid a block premium and invoiced each
management company for the appropriate proportion. CPM as managing agents then
discharged the amount of the invoices to Rialto and collected a proportionate
part from the individual tenants as part of the service charges. Tarmac for its
part insured its developments with Norwich Union through brokers called
Markfield.
When Sinclair
acquired the reversions it decided to make fresh arrangements for insurance of
the buildings. It required the management companies to insure with Commercial
Union Assurance plc through an associated company, Cullenglow Ltd, which, under
the name of Princess Insurance Agencies, carried on insurance business as an
exclusive agent for Commercial Union. As from January 1 1993, Sinclair insured
11 blocks with Commercial Union. The amount of the cover was based on the same
valuation as in the policies arranged by Rialto, but the premium rate was
considerably higher. In one instance the insurance was arranged from February
10 1993. Similar arrangements were made in the case of the three Tarmac
developments. In fact on January 18 1993 CPM had undertaken negotiations on
behalf of the management companies of the three Tarmac blocks and had arranged
insurance.
In February
1993 Sinclair gave notice to CPM and to the other management companies not
represented by CPM that it required the managers in accordance with the several
covenants under their leases to insure the property with the nominated insurer
of the landlord, Commercial Union Assurance plc, and that such insurance be
placed through the agency of the landlord, Princess Insurance Agencies, who
would place and keep on foot the insurance cover with Commercial Union. This
letter was not well received by CPM who took the stand that as the original
block buildings insurances had been maintained and the cover was perfectly
acceptable to the flat owners and their mortgagees there was no justification
for any change in insurer. Sinclair maintained that the management companies
were not entitled to arrange insurance cover in any way other than in
accordance with the terms of the leases and the notice which had been served.
As Sinclair had already paid out premiums for insurance on behalf of the
management companies, it contended it was entitled to recover the sums so paid.
The premiums
required by Commercial Union were considerably higher than the premiums which
the management companies had been paying and to the tenants it seemed
unreasonable that they should be required to pay more since the management
companies were already insuring with insurers of repute. The difference in
rates per £1,000 insured were substantial. So, for example, the development at
Willenhall Drive, Hayes, Middlesex, carried out by Tarmac and managed by
Berrycroft Management Co Ltd was insured by Tarmac with Norwich Union for a sum
insured of £3m at a premium of £0.50 per £1,000, but the premium charged by
Commercial Union through Cullenglow was £1 per £1,000 for a sum insured of
£2.4m. The development in Harrow Road, Wembley, carried out by Rialto was
insured through Sun Alliance at a rate of £0.50 per £1,000 but for the same
cover Commercial Union required a premium of £1.05 per £1,000.
Although the
total premium could thereby be increased by as much as £1,000 or £2,000, when
the increase was distributed pro rata among the tenants, the increases
considered in individual cases appeared less dramatic.
In these
applications an individual tenant and a management company from each of the
developments applied for an order against Sinclair claiming a declaration that
the premium in respect of insurance was excessive and irrecoverable.
Alternatively, they sought an order under the provisions of sections 19 and
30(A) of the Landlord and Tenant Act 1985 and para 8 of the Schedule thereto
that Sinclair were not entitled to recover expenditure upon insurance effected
in respect of the property of the applicants and that the amounts incurred by
Sinclair or at its direction in respect of insurance premiums payable to
Commercial Union were not relevant costs reasonably incurred within the meaning
of sections 18 and 19 of the Landlord and Tenant Act 1985 in determining the
amount of service charges payable pursuant to the lease. Consequential orders
were sought under the provisions of the Landlord and Tenant Act 1985.
On December 22
1994 Judge Paul Baker QC gave judgment in favour of Sinclair rejecting the
claims of the tenants and management companies. He held that under the terms of
the leases Sinclair as assignee of the reversion and landlord was entitled to
require the management companies to insure through Cullenglow with Commercial
Union. He held that no term was to be implied in the leases that the landlord
could only require the management companies to pay a reasonable premium, but in
any event he held that the premium required by Commercial Union was not
unreasonable or excessive in the circumstances. Further, after considering
extensive evidence about the rates of premium available in the market and the
reasons why the premiums quoted by Sun Alliance and Norwich Union were
substantially lower than those of Commercial Union, he held that the costs of
insurance effected through Cullenglow with Commercial Union were not
unreasonably incurred and he declared that expenditure incurred by Sinclair in
respect of insurance premiums when CPM had refused to accept the claims of
Sinclair was recoverable from the management companies. He refused the
applicants relief under the Landlord and Tenant Act 1985.
Terms of
the leases
I now come to
the relevant terms of the leases. I propose to take as typical the terms of a
lease entered into on March 17 1992 between the landlord, Rialto, the
management company Harrow Road Sudbury Management Co Ltd, and the tenants,
Michael Legg and Tracey Thornton. For a purchase price of £64,100 the tenants
were granted a lease for a term of 99 years from September 1 1991. The initial
yearly rent was £60, but that increased after the first 33 years. The lease was
of a ground-floor flat, 35 Marnan Court, 665 Harrow Road, Wembley, together
with a private parking place.
As previously
indicated, the terms of the leases are complicated by the fact that, in
addition to the covenants entered into by the landlord and tenant, obligations
are imposed and covenants are given by a management company which has no estate
in the land. At first sight the covenants given by the management company,
referred to in the leases as ‘the company’, have the characteristics of
personal covenants creating privity of contract but no privity of estate. In
relation to insurance of the building under the fifth schedule of the lease the
company covenants with the landlord and with the tenant (provided that the
tenant shall have paid the management charge):
(3) To insure
at all times of the term … and to keep insured the building and such other
areas as the landlord decides to insure for such sum as the landlord thinks fit
against loss or damage by fire and such other normal household risks in some
insurance office of repute and if directed by the landlord through a company
nominated by the landlord and if required through any agency of the landlord in
that company (such insurance to be effected in the joint names of the landlord,
the company and the tenant for their respective interests).
By clause 5 of
the lease the tenant covenants with the landlord and its successors in title
and as a separate covenant with the company in the terms set out in the
fourth schedule hereto. The fourth schedule entitled ‘Covenants by the tenant
in relation to payment of a management charge’, provides a covenant by the
tenant:
To pay to the
company on 1st January in each year or such other date as may from time to time
be specified: —
The sum
reasonably specified by the company in advance and on account of the management
charge for the then current management expenditure year.
‘Management
charge’ is defined in the lease to mean:
The annual
contribution payable by the tenant under the provisions of this lease which
shall be such proportion of the management expenditure in respect of the
matters specified in Part 1 of the 5th schedule hereto … as shall be certified
annually as being just and equitable by the accountants and auditors to the
company …
Thus the
effect of clause 5 of the lease, the fourth schedule and the fifth schedule is
that the tenant covenants directly with the landlord and its successors in
title to pay to the company the management charges as defined and as set out in
Part 1 of the fifth schedule and thus to pay a proportion of the insurance
premium effected in the joint names and therefore on behalf of the landlord,
the company and the tenant.
The first
question as identified by the judge in his judgment was:
What are the
rights and obligations of the parties as regards insurance under the terms of
the leases?
He later
stated that the issues which had been canvassed before him as arising from the
terms of the leases were:
(a) The
extent of the obligation of the parties to the leases to insure;
(b) The
circumstances in which the landlord can exercise his rights of nomination;
(c) The
limits, if any, on the terms of insurance required by the nominated company and
agent;
(d) The
circumstances under which the default provisions can be brought into play;
(e) The
effect of insurance by the landlords on the terms of the leases.
The judge
concluded that the obligation to insure and keep the blocks of flats insured
was placed on the management company and the tenant’s obligation was only to
pay a due proportion of the premium. He held that under para 3 of the fifth
schedule the landlord had the right to nominate the insurance company and
agency, if any, of the landlord in that company through which the insurance was
to be placed. He held that an assignee of the landlord was entitled to make his
own nomination, that where the landlord exercised its right of nomination the
role of the management company in practice was reduced to paying the premiums
required by the agent and passing them on to the lessees as part of the service
charges. Although the default provisions were in some respects not aptly
worded, they were sufficiently widely worded to empower the landlord to enforce
a covenant even though it merely required expenditure, as for example of the
insurance premium. He thus held in circumstances in which managing agents
acting on behalf of two of the management companies had refused to insure
through Cullenglow, there had been default by the management companies of their
covenants to insure under the fifth schedule and Sinclair was entitled under
the default provisions to insure and recover the cost. With this analysis of
the effect of the provisions of the lease, I do not in general disagree but I
find difficulty in interpreting para 3 of the fifth schedule as giving the
landlord the right to nominate the insurance office of repute as such for it
seems to me that the language used draws a distinction between the insurance
office of repute and the company nominated by the landlord and the words ‘that
company’ which follow must refer back to the company nominated by the landlord.
If the landlord was requiring the right to nominate the insurance office, it
would have been simple to refer to ‘an insurance office of repute nominated by
the landlord’.
In the case of
Cullenglow which had an exclusive agency for Commercial Union, the effect of
para 3 of the fifth schedule effectively resulted in nomination of the insurer
but it seems to me that arose from the special facts of the case rather than
from a construction of the covenant.
First
question
The management
company and the tenants argued that a term was to be implied into the covenants
between the company and the landlord and between the tenant and the company
that the sum charged by the nominated insurer should not be unreasonable.
Alternatively that the tenant could not be required to pay a substantially
higher sum than he could himself arrange with an insurance office of repute.
For the
appellants it was argued that the court should follow the reasoning of this court
in Finchbourne Ltd v Rodrigues [1976] 3 All ER 581*. The lessors
in that case were the owners of a block of flats and the defendant was tenant
under a lease which provided that the tenant was required to contribute a
yearly sum equal to 4% of the amount which the landlord should from time to
time have expended in maintaining and running the block of flats as a whole.
*Editor’s
note: Also reported at [1976] 1 EGLR 51
The amount of
the contribution was to be ascertained by an independent agent. The landlord
brought an action against the tenant to recover the contribution which had been
certified by his own firm and on a preliminary issue the judge held that no
valid certificate had been issued in accordance with the terms of the lease. In
addition, however, he held that the landlord could only recover for costs and
outgoings such sums as were fair and reasonable.
On appeal on
the question whether it was necessary having regard to the terms of that lease
to imply a term that the costs should be fair and reasonable, Cairns LJ said at
p587:
Taking the
strictest of tests on that matter, I am of that opinion such an implication
must be made here. It cannot be supposed the plaintiffs were entitled to be as
extravagant as they chose in the standards of repair, the appointment of
porters etc … In my opinion, the parties cannot have intended that the
landlords should have an unfettered discretion to adopt the highest conceivable
standard and to charge the tenant with it.
Browne LJ
agreed that the term must be implied in the lease and the costs should be fair
and reasonable.
The recovery
by the landlord of the charges for insurance in that case were but part of the
charges, 4% of which the tenant was required to pay, and no express attention
was paid by the court to the recovery of charges for insurance in isolation. It
is significant that the court referred expressly to the other outgoings which
would make up the sum payable by the tenant.
For Sinclair
reliance was placed on Bandar Property Holdings Ltd v JS Darwen
(Successors) Ltd [1968] 2 All ER 305 in which Roskill J declined to imply a
term that the landlord should act reasonably in placing insurance, the cost of
which he was entitled to recover from the tenant. The term which he was asked
to imply was that the lessor should place the insurance so as not to impose an
unnecessarily heavy burden on the lessee since the amount of such insurance was
to be repaid to the lessor by the lessee.
At p307G
Roskill J said:
It is
axiomatic that a court will not imply a term which has not been expressed
merely because, had the parties thought of the possibility of expressing that
term it would have been reasonable for them to have done so. Before a term
which has not been expressed can be implied it has got to be shown not only
that it would be reasonable to make that implication, but that it is necessary
in order to make the contract work that such a term should be implied.
Sinclair also
placed reliance on the more recent decision of this court in Havenridge Ltd
v Boston Dyers Ltd [1994] 49 EG 111*. The terms of the clause in that
case required the lessor to insure with some insurance office of repute and the
tenant to pay as insurance rent all sums properly expended.
*Editor’s
note: Also reported at [1994] 2 EGLR 73
Again the
court declined to imply a term of reasonableness or to construe ‘properly’ as
if it meant ‘reasonably’. At p75 Evans LJ said:
But the
question remains, what limit should be placed upon the tenant’s obligation to
indemnify the landlord, so as to preclude an exorbitant claim or what Cairns LJ
described in Finchbourne Ltd as an ‘outlandish’ result? In my judgment,
it matters not whether the limit is expressed as the meaning or true
construction of ‘properly pay’ or as an implied restriction on the landlord’s
right of recovery under clause 2(6)(a). The limitation, in my judgment, can
best be expressed by saying that the landlord cannot recover in excess of the
premium which he has paid and agreed to pay in the ordinary course of business
as between the insurer and himself. If the transaction was 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, or, equally, it can be supposed that both parties
would have agreed with the officious bystander that the tenant should not be
liable for a premium which had not been arranged in that way.
If this is
the correct test, as in my judgment it is, then the fact that the landlord
might have obtained a lower premium elsewhere does not prevent him from
recovering the premium which he has paid. Nor does it permit the tenant to defend
the claim by showing what other insurers might have charged. Nor is it
necessary for the landlord to approach more than one insurer, or to ‘shop
around’. If he approaches only one insurer, being one insurer of ‘repute’, and
a premium is negotiated and paid in the normal course of business as between
them, reflecting the insurer’s usual rate for business of that kind then, in my
judgment, the landlord is entitled to succeed. The safeguard for the tenant is
that, if the rate appears to be high in comparison with other rates that are
available in the insurance markets at the time, then the landlord can be called
upon to prove that there was no special feature of the transaction which took
it outside the normal course of business.
Mr David
Neuberger QC for Sinclair also drew our attention to the decision of the House
of Lords in Viscount Tredegar v Harwood [1929] AC 72. The lease
in that case was for 99 years. It contained a covenant by the lessee to insure
against fire during the term in the joint names of the lessee and lessor in the
Law Fire Office or in some other responsible insurance office to be approved by
the lessor.
The tenant
assignee of the lease discontinued the policy with the Law Fire Office and took
out a policy with Atlas. The lessor refused to approve the Atlas company on the
ground that for the purposes of estate management he required that all houses
upon his estate should be insured in the same office. The lessee refused to
insure with the Law Fire Office and on an action brought by the lessor to
obtain the decision of the court on the construction of the covenant the House
held that upon the true construction of the covenant the primary obligation of
the respondent was to insure in the Law Fire Office and that the appellant had
an absolute right to withhold his approval of an alternative office without
entering upon reasons.
In the Court
of Appeal it had been held that there should be implied into the lease the term
that the consent of the lessor to any responsible insurance office selected by
the lessee was not to be unreasonably withheld.
In the course
of his speech Lord Shaw of Dunfermline said:
In the
present case no such restriction or condition upon the right of approval or
disapproval by the landlord is imposed. The case is the simple one of one sound
office being named, with the alternative given of another responsible office
approved by the lessor. If the lessee will not insure in the Law Fire Office
nor in any other responsible office which the lessor has approved, the covenant
is broken. It is a condition precedent to the alternative being resorted to
that the lessor’s consent has been given to the other office suggested. I am of
opinion in these circumstances that this condition precedent cannot be removed
or held as satisfied, because in the opinion of a court of law
cannot be allowed to supply the want of the lessor’s consent in fact.
Later he said:
Were it
necessary to inquire, then the facts of this case would show that there were
sound business reasons behind this unfettered simplicity. The lessor was the
owner of many hundreds of houses erected under building leases, and the
development of a considerable estate required strict attention to, among other
things, the insurance of the buildings erected. The difficulty in such cases is
to check the failure in renewals. With properties so numerous, and insured, it
may be, in a dozen different offices, this point of management becomes very
complex, and, in this case, it is pointed out that the cost involved becomes
considerable. By a simple working arrangement with one office, such as the Law
Fire, simplicity and accuracy are promptly secured.
It is
elementary that the specific covenants in each case have to be construed in the
context of the lease in which they are contained. Construction of a clause in
one lease in a particular way is no guide to the construction of a clause in
another lease couched in different terms and set in a different context.
However the observations to which I have drawn attention are, it seems to me,
of assistance as a guide to the approach which the court should take to the
construction of the covenants in this case.
I can see no
reason to imply any term into the covenant by the management company that there
should be a restriction, however defined, on the landlord’s right to nominate
either the company or the agency through which the insurance is to be placed.
The management company and the tenant are protected by the qualification that
the insurance office must be of repute. The right of the landlord to nominate
the company and the agency is unqualified.
No question
arises in the present case of the insurance having been arranged otherwise than
in the normal course of business nor otherwise than through an office of
repute. Nor on the judge’s findings were the rates proposed to be charged by
Commercial Union other than market rates. That they were higher than the
management company could have secured is beside the point. The landlord was not
required to give reasons for requiring the insurance to be effected through his
agency or with the company chosen. In fact he did give reasons which bore close
resemblance to those suggested by Lord Shaw in the case cited.
I am of
opinion that the judge was correct on the facts of this case to refuse to imply
into the covenants in question any additional terms.
Second
question
What was the
effect on the rights and liabilities of the landlord and tenant under the
leases of the provisions of the Landlord and Tenant Act 1985 as amended by the
Landlord and Tenant Act 1987?
Sections 18 to
30 refer to restrictions on ‘Service Charges’. The relevant provisions are:
18. (1) In
the following provisions of this Act ‘service charge’ means an amount payable
by a tenant of a [dwelling] as part of or in addition to the rent —
(a) which is
payable, directly or indirectly, for services … or insurance or the landlord’s
cost of management, and
(b) the whole
or part of which varies or may vary according to the relevant costs.
(2) The
relevant costs are the costs or estimated costs incurred or to be incurred by
or on behalf of the landlord, or a superior landlord, in connection with the
matters for which the service charge is payable …
19. (1)
Relevant costs shall be taken into account in determining the amount of a
service charge payable for a period —
(a) only to
the extent that they are reasonably incurred, and
(b) …
and the
amount payable shall be limited accordingly.
…
(4) A county
court may make a declaration —
(a) that any
such costs were or were not reasonably incurred,
…
(c) that any
such amount is or is not reasonable, notwithstanding that no other relief is
sought in the proceedings …
Section 30:
In the
provisions of this Act relating to service charges —
‘landlord’
includes any person who has a right to enforce payment of a service charge;’
Section 30A
provides:
The Schedule
to this Act (which confers on tenants certain rights with respect to the
insurance of their dwellings) shall have effect.
Although the
company under the leases in the present case is not a recognised tenants
association as defined by section 29, in a subsequent section of the Act, as
amended, section 30(B)(8), a landlord is specifically defined for the purposes
of that section in these terms:
‘landlord’,
in relation to a recognised tenants association, means the immediate landlord
of the tenants represented by the association or a person who has a right to
enforce payment of service charges payable by any of those tenants;
Upon the
second question the judge said of the statutory provisions:
The
application of these provisions to the cases in hand gives rise to the
following questions.
(a) Does the
cost of insurance included in the service charge payable by each of the tenants
exceed what is reasonable and if so by what amount?
(b) Do the
tenancies of the flats require the tenant to insure the dwelling with an
insurer nominated by the landlord?
(c) If so, is
the insurance available from the nominated insurer unsatisfactory in any
respect or are the premiums excessive?
He said:
It will be
convenient to take question (b) first. If the answer is in the negative, only
question (a) will remain … None of the leases of the flats with which I am
concerned require the tenant to insure at all much less to insure with a
nominated insurer. On the contrary it is the management company which covenants
with each tenant to insure his flat as part of the block and that company is or
may be required to insure with an insurer nominated by the landlord. It is true
that the management company is owned by all the tenants in a block but that, in
my judgment, is insufficient to bring the leases either individually or
collectively within the scope of para 8. In the first place the management
company in relation to the tenant for the purposes of the schedule is a
landlord not a tenant. Second, what is necessary to bring this paragraph into
operation is a requirement of the tenant to insure the dwelling ie the flat of
which he is the tenant. The insurances in these cases are of entire blocks for
obvious reasons. The Act of 1987 extended the scope of the service charge
provisions of the Act of 1985 to leases of individual dwellings whereas they
had previously been confined to leases of flats forming part of a building. The
paragraph was introduced to give a remedy where dwellings which unlike flats
might frequently be insured separately. Accordingly I now go to the remaining
question, question (a).
Having regard
to the view which I have formed that the judge’s conclusion under his question
(a) cannot reasonably be challenged, it is perhaps unnecessary to consider the
basis of his answer to question (b). Nevertheless I do not think it is possible
in the circumstances of this case and having regard to the terms of the Act to
regard the company as the tenants’ landlord to the exclusion of the landlord as
defined in the lease.
In the first
place the definition in section 30 includes any person who has a right to
enforce payment of a service charge. As the tenant has covenanted directly with
the landlord and his assignees under the provisions of clause 5 of the lease to
pay the service charge to the company, it seems to me the landlord does have
the right to enforce payment of the service charge and so is a landlord for the
purpose of the provisions of the Act. Under section 18 a service charge means
an amount payable by a tenant for insurance but it still has to be an amount
the whole or part of which varies or may vary according to the relevant costs
and relevant costs are defined to be costs incurred or to be incurred by or on
behalf of the landlord.
Although the
management company effects insurance in the joint names of the landlord and the
tenant, in so far as the insurance charges are incurred by the tenant as part
of the service charge, they would not, in my view, be regarded as incurred by
or on behalf of the landlord and
should be effected through a company or agency nominated by the landlord, the
management company will have paid in accordance with its obligations contained
in a contract to which the tenant is a party and there would be no basis for
reducing the sum recoverable from the tenant.
Turning to the
requirements of the Schedule, para 8 provides:
(1) This
paragraph applies to a tenancy of a dwelling which requires the tenant to
insure the dwelling with an insurer nominated by the landlord.
(2) Where, on
an application made by the tenant under any such tenancy, the court is
satisfied–
(a) that the insurance which is available from
the nominated insurer for insuring the tenants’ dwelling is unsatisfactory in
any respect, or
(b) that the premiums payable in respect of any
such insurance are excessive, the court may make either an order requiring the
landlord to nominate such other insurer as is specified in the order or an
order requiring him to nominate another insurer …
In para (1) of
the Schedule ‘landlord’ is defined:
… in relation
to a tenant by whom a service charge is payable which includes an amount
payable directly or indirectly for insurance, includes any person who has a
right to enforce payment of that service charge.
For the
reasons already expressed, I consider that the landlord and his assigns as
specified in the lease come within this definition. In the present case however
it seems to me arguable that it is the landlord’s nomination of the company and
of the particular agency which results in the tenant having to pay for the cost
of insuring with Commercial Union rather than the terms of the tenancy. If the
terms of para 3 of schedule 5 of the lease had given the landlord the right to
nominate the insurer, I would like to reserve an opinion whether the fact that
the management company undertook to insure on behalf of the landlord and the
tenant would take the provisions of the lease outside para 8 of the Schedule.
As previously
indicated, the judge concluded after a thorough review of the evidence that the
quotations for insurance from Commercial Union were competitive compared with a
quotation obtainable by a single management company acting alone and that the
active and responsible management of the agency nominated by Sinclair was,
taken overall, beneficial to the lessees. Consequently the costs of the
insurance were not unreasonably incurred. The tenor of his judgment is that the
amounts quoted by Commercial Union were neither unreasonable nor excessive and
were negotiated in the ordinary course of business. In my view, therefore,
these appeals must be dismissed.
Henry and Hutchison LJJ agreed and did not add
anything.
Appeal
allowed with costs.
