UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2015] UKUT 31 (LC)

LT Case Number: LRX/116/2014

 

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

LANDLORD AND TENANT – service charges – whether insurance premium charged is reasonable – First Tier Tribunal failed to have regard to fact the sum insured in lessee’s alternative quotations was not comparable – sections 19 and 27A Landlord and Tenant Act 1985

 

 

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE

THE FIRST TIER TRIBUNAL PROPERTY CHAMBER

(RESIDENTIAL PROPERTY)

 

 

 

BETWEEN ZAMBRA INVESTMENTS LIMITED Appellant

and

MISS TRACEY ELLIS Respondent

 

Re: 264 Old Church Road,

Chingford,

London

E4 8BT

 

Determination by written representations

 

 

 

The following cases are referred to in this decision:

 

Arrowdell Ltd v Coniston Court (North) Hove Ltd [2007] RVR 39

 

© CROWN COPYRIGHT 2015

DECISION

Introduction

1.    This is an appeal against a decision of the First-tier Tribunal Property Chamber (Residential Property) (“F-tT”) dated 8 August 2014 in which it determined that insurance premiums claimed by Zambra Investments Limited (“the appellant”) are unreasonable as to cost and substituted a sum of £256.03 in respect of insurance premiums for the service charge years 2013 – 2014 and 2014 – 2015.

2.    The appellant is the freehold owner of a maisonette known as 264 Old Church Road, Chingford, London E4 8BT (“the Maisonette”) of which Miss Tracey Ellis (“the respondent”) is the lessee pursuant to a lease dated 15 October 1986 (“the Lease”).

3.    Permission to appeal was granted by the Tribunal (Martin Rodger QC, Deputy President) on 5 November 2014 and it was ordered that the appeal be dealt with by way of review with a view to re-hearing. 

Factual background

4.    The appellant is the freeholder of 12 maisonettes within a row of properties.  Five of the maisonettes are directly owned by the appellant and seven maisonettes, including the respondent’s, are let on long leases.  By clause 4(5) of the Lease the landlord covenanted to insure the building comprising the Maisonette and another maisonette (No. 262) and by clause 2(1)(b) the tenant covenanted to re-pay on demand the insurance premium applicable to the Maisonette.  In fact the appellant insures the Maisonette together with the other six maisonettes let on long leases under a single policy of insurance.  Although the remaining five maisonettes directly owned by the appellant are physically interspersed between the seven let on long leases, there is a separate insurance policy for those five maisonettes.  The fact that the insurance policy covering the Maisonette only relates to the seven of the twelve maisonettes is key to the issue raised in this appeal.

5.    The insurance premium charged for 2013-2014 was £4,557.99 of which the respondent’s share was £651.14.  The insurance premium charged for 2014-2015 was £4,881.03 of which the respondent’s share was £697.29.  It is to be noted that the respondent’s share was arrived at by dividing the total insurance premium by seven.  On 22 April 2014 the respondent applied to the F-tT for a determination as to the reasonableness of those insurance premiums.  The respondent sought to support her application by obtaining quotes for insuring all twelve maisonettes albeit for the same reinstatement cost as that insured by the appellant for seven maisonettes. One of those quotes was from AXA Insurance UK Plc, the same insurer used by the appellant.

6.    In its Statement of Case to the F-tT the appellant made clear that the AXA quote obtained by the respondent was based on twelve maisonettes rather than seven.  As a result of the AXA quote obtained by the respondent and an up-to-date valuation of the reinstatement cost of the seven maisonettes let on long leases obtained by the appellant, AXA agreed to reduce the premiums charged for 2013-2014 and 2014-2015.  Notwithstanding this, the premium remained higher than the quotations relied upon by the respondent.  The appellant sought to support its higher insurance premium on the grounds that it was a more comprehensive policy with better benefits.

7.    As to the respondent’s other quotations, the F-tT in its decision did not consider that these had been obtained on a like for like basis and, having been obtained through internet searches, did not necessarily represent the final premium which would be charged.  As to the AXA quotation the F-tT said that this:

“23. I am not satisfied that the insurance arrangements are reasonable.  Whilst I am mindful that a landlord is not obliged to obtain the cheapest insurance, it does appear from the AXA quotations produced by Ms Ellis that the insurance for all of the buildings could be purchased at a figure less than the premiums being charged by the landlord to the lessees in respect of their seven units.

24. Using the AXA quotation it appears that the landlords should obtain insurance for the whole block, on terms very similar to those of the current policy, including lettings to DSS tenants, lessees and anyone else, with a similar sum assured and cover for £3,072.41 or £256.03…

26. I find the AXA quotation is comparable and the premium quoted a reasonable alternative to that charges by the landlord …”

It is to be noted that the figure of £256.03 is arrived at by dividing the total of £3,072.41 by twelve.

8.    The building reinstatement cost which formed the basis of the respondent’s AXA quote was £1,000,000 and the building reinstatement cost for seven maisonettes which formed the basis of appellant’s insurance premium was £1,029,262, not dissimilar figures.  In her Statement of Case in this appeal the respondent has produced a reinstatement cost assessment in respect of the twelve maisonettes in sum of £1,468,200, a significantly higher figure.

The Appeal

9.    The F-tT has jurisdiction to determine liability to pay service charges by virtue of s.27A of the Landlord and Tenant Act 1985 (“the 1985 Act”), including the amount which is payable.  By virtue of s.19 of the 1985 Act, service charges are to be paid only to the extent that they are reasonably incurred.  Service charge is defined in s.18(1) so as to include an amount payable by a tenant for, amongst other things, insurance.

10.         There is a right of appeal from the F-tT to the Tribunal, with permission, s.11 of the Tribunals, Courts and Enforcement Act 2007. The grounds on which such an appeal may be brought are set out in paragraph 4.2(1) of the Tribunal Practice Direction 2010 and include that the F-tT misinterpreted the law, made an error in relation to a valuation principle or professional practice, failed to have regard to relevant considerations or took into account irrelevant considerations,  there was a substantial procedural defect or the issue has wide implications.

11.         The appellant contends that the respondent’s AXA quotation was not comparable because the premium did not include coverage for the reinstatement cost of twelve maisonettes, only seven, albeit that the quotation referred to twelve flats.  The F-tT failed to consider what would be the reinstatement cost for twelve maisonettes and therefore what would be the necessary sum insured for any insurance for twelve maisonettes, despite the fact that it was pointed out by the appellant at the F-tT hearing that the sum insured in the respondent’s AXA quote was only for seven flats. If the F-tT considered that about £1,000,000 of cover, i.e. a sum insured that would cover the reinstatement of seven maisonettes, could be obtained for £3,072.41, then that figure should have been divided by seven not twelve to reflect the respondent’s share which would give a figure of £438.92. Alternatively, if the F-tT considered that the reinstatement cost of twelve maisonettes was £1,000,000, it should have given reasons for coming to that conclusion which was contrary to all the evidence.

12.         Contrary to the principles set out in Arrowdell Ltd v Coniston Court (North) Hove Ltd [2007] RVR 39, the F-tT has not reached its decision on the basis of the evidence before it and has not given adequate reasons for its method of apportionment. Accordingly, the F-tT’s finding that the appellant’s premium was unreasonable by reference to the respondent’s AXA quotation was flawed.

13.         The respondent’s Statement of Case appears to acknowledge that the reinstatement cost of twelve maisonettes is higher than the sum insured in the AXA quotation relied upon by her at the F-tT hearing.  As already indicated, the reinstatement cost assessment she produces gives a figure of £1,468,200 for twelve units. However, she does not specifically address whether or not the F-tT accordingly fell into error.  Rather she has produced further insurance quotations which she contends demonstrate that, on the basis of the increased reinstatement cost, the insurance premiums claimed by the appellant are still excessive.  This appeal is a review of the F-tT’s decision which is confined to the grounds identified above. It is not appropriate at this stage for the Tribunal to re-take a decision as to what a reasonable insurance premium would be. The more recent insurance quotations obtained by the respondent would only be relevant if the F-tT decision is set aside and a re-hearing is ordered.

Decision

14.         In my judgment it is clear that the F-tT has failed to have regard to whether the respondent’s AXA quotation was comparable to the insurance obtained by the appellant having regard to the fact that the sums insured were virtually identical but the appellant’s insurance covered only seven maisonettes whereas the respondent’s AXA quotation covered twelve maisonettes.  The re-building cost of twelve maisonettes could be expected to be significantly higher than that of seven as demonstrated by the re-instatement cost assessment obtained by the respondent in this appeal which is nearly half as much again.

15.         The reason for the discrepancy between the insurance premium charged and the respondent’s AXA quotation emerges from the respondent’s Statement of Case in the F-tT proceedings.  She states that her quotation is based on the twelve maisonettes within the block.  Under the heading “premium apportionment” she states:

“The managing agents have confirmed the insurance premium is apportioned between seven flats.  For the sake of clarity, there is twelve flats within the block.  Can the managing agents please provide an explanation as to why the premium is apportioned between seven flats…”

It is clear that initially the respondent believed the appellant’s insurance premium covered all twelve maisonettes, as did the sum insured, and it is on that basis that she sought alternative insurance quotations.  In its response to that Statement of Case the appellant made clear that the five maisonettes owned by it were insured separately by the appellant via its mortgagee i.e. that the insurance policy relating to the Maisonette only included seven maisonettes not twelve.  The appellant obtained a revised valuation of the reinstatement cost which was sent to the F-tT.  This clearly identified the number of units as seven and the estimated re-instatement cost as £1,029.262.

16.         Thus it should have been clear to the F-tT that the respondent’s AXA quotation had not been obtained on a comparable basis and the sum insured did not reflect the reinstatement cost of twelve maisonettes as opposed to seven. Moreover, in its Grounds of Appeal the appellant states that, and this is not disputed by the respondent, “it was pointed out by [the appellant] and acknowledged by the Respondent and the tribunal at the hearing that in fact the sum insured value in the AXA quote was only for 7 Maisonettes” (paragraph 14).

17.         Rather than using its own expertise to conclude that an appropriate reinstatement cost for twelve maisonettes was £1,000,000, the F-tT appear to have relied upon the respondent’s AXA quotation as showing that this was the reinstatement cost of twelve maisonettes. In doing so it either failed to have regard to the appellant’s reinstatement cost valuation and failed to consider what the reinstatement cost of twelve maisonettes would be, or, if it did have regard to those matters, the F-tT failed to give reasons for rejecting the appellant’s evidence. In the light of its failure to have regard to whether or not the sums insured were truly comparable, the F-tT has failed to take into account a relevant consideration and evidence and/or failed to give reasons such that its decision should be set aside.

18.         In response to the further insurance quotations obtained by the respondent after the F-tT decision, the appellant seeks that any rehearing has regard to correspondence from its valuer and expert evidence by way of response. Accordingly it is not possible for the Tribunal to determine what would be a reasonable insurance cost on the basis of the parties written representations.

19.         Therefore the case will be remitted to the F-tT for re-hearing and it will be a matter for the F-tT to determine what procedure to adopt and what evidence to consider. This decision is final on all matters other than costs.  The parties may now make submissions on costs and a letter giving directions for the exchange of submissions accompanies this decision. The parties attention is drawn to the restrictions as to the award of costs in rule 10 of The Tribunal Procedure (Upper Tribunal)(Lands Chamber) Rules 2010 as amended by The Tribunal Procedure (Amendment No. 3) Rules 2013.

Dated: 26 January 2015

 

 

Her Honour Judge Alice Robinson