Thursday, 26 October 2017

Service Charge Victory: Insurance Premiums Slashed

How we love service charges in residential leases: almost as much as poisoned tea and six strokes of the cane at school for doing nothing wrong. It's because of this love that I have visited the topic before - see http://www.breakinglaw.co.uk/search/label/service%20charges - with news of successful court and tribunal challenges by tenants. Here's another one, just like the other ones.

In Cos Services Ltd v Nicholson and Willans [2017] UKUT 382 (LC) before the upper tribunal of the lands chamber, the service charge in issue took the form of buildings insurance premiums for three years in respect of Chiltern Court in Harpenden which is a purpose-built block of 16 flats with separate garages. The tribunal upheld the decision of a first-tier tribunal that the premiums sought (which had to be shared between each flat) for each year in question should be reduced respectively, ignoring the pence, from £12,598 to £2,803, from £12,670 to £2,819 and from £11,150 to £3.017. Wow!

The crucial point to be decided was whether the premiums asked for had been reasonably incurred. That meant, said the judge, that consideration had to be given to both the rationality of the landlord's decision making and the reasonableness of the charge. It was not necessary for the landlord to show that the premium charged was the lowest that could be obtained in the market but it still had to be reasonable. A landlord would be required to explain the process by which the policy and premium had been selected, with reference to the steps taken to assess the current market. Tenants might, as happened in this case, place before the tribunal the quotations that they have been able to obtain from elsewhere  although they would have to ensure that the policies were comparable. 

As also happened in this case, it was open to a landlord with a number or properties to negotiate a block policy covering the entirety. However, the landlord would then need to prove that the block policy had not resulted in a substantially higher premium which had been passed on to tenants of  a particular building without any significant compensating advantages to them.