This page highlights the tenant's statutory rights to challenge insurance.
Statutory rights in respect of insurance
Landlord and Tenant Act 1985, Sch 1.
Tenants have the right to obtain a summary of cover, to inspect the policy, notify insurers of a potential claim and to apply to the LVT to challenge the lessor’s choice of insurer and the premiums payable.
Additional Rights of Tenants of Houses under CLRA 2002
No requirement to use landlord's insurer
Section 164 of the Commonhold and Leasehold Reform Act 2002
Leasehold Houses (Notice of Insurance Cover) (England) Regulations 2004. (2004/3097)
Leasehold Houses (Notice of Insurance Cover)(Wales) Regulations 2005 (SI 1354; W 102)
Leasehold Houses (Notice of Insurance Cover) (England) (Amendment) Regulations 2005 (SI 2005/177)
Section 164 of the 2002 Act provides tenants under long leases with new rights in respect of insurance. They are not required to effect insurance with the landlord’s insurer if certain conditions are met, e.g. if the house is insured under a policy of insurance issued by an authorised insurer. These regulations set out the information that is required to be included in a notice of cover. In force in England on 28 February 2005; Wales on 31 May 2005.
The English regulations were amended to rectify an error in the prescribed form of notice of cover. The brackets in paragraph 10 are deleted.
Failure to comply with terms of lease
Insurance in joint names
Green v 180 Archway Road Management Co Ltd
 UKUT 245 (LC)
A tenant was not required to contribute to the cost of insurance because the landlord had failed to take out insurance in joint names in accordance with the terms of the lease.
The lease contained a covenant by L to insure the property in the joint names of the landlord and tenant. This had not been done. L argued that a general interest of the tenant that was noted on the Certificate of Insurance was sufficient, that it would be impractical to note all specific interests, and that the only explanation for some specific noting of interests was historical. The LVT accepted L’s argument and determined that there was insufficient reason for T to refuse to pay her contribution to the building insurance.
On appeal, the Upper Tribunal held that the question was not whether insurance had been placed which, on the balance of probabilities, would have been sufficient for T if she had made a claim. The question instead was whether L had complied with its obligation under the lease. T’s covenant is a covenant to pay one quarter of the sum expended for insuring the building “in accordance with Clause 4(ii) hereof”.
Accordingly in order to be entitled to seek payment from T under her covenant the respondent must show that it has placed insurance in accordance with that clause. This clause required the respondent to insure the building “in the joint names of the Lessor and Lessee”. Accordingly, T was only required to contribute towards the insurance in the years that she had specifically been named on the certificate of insurance.
This case has significant practical implications for the construction of existing lease obligations and for future drafting of lease terms. It highlights the fact that (as with service charge provisions) where strict compliance with lease provisions has not been observed the cost of insurance will not be recoverable from the tenant.
Reasonableness of insurance premiums
Guidance on assessing reasonableness
Cos Services Limited v Nicholson and Willans
 UKUT 382 (LC)
A landlord sought to recover payments from its tenants in respect of the insurance premium it had paid. The Tribunal substantially reduced the payments and gave guidance as to how an assessment of reasonableness of insurance premiums under s19 of the Landlord and Tenant Act 1985 ought to be approached.
Relevant statutory provisions
Section 27A(1) of the Landlord and Tenant Act 1985 provides (so far as is relevant) that an application may be made for a determination whether a service charge is payable, and if it is, as to… “(c) the amount which is payable”.
Section 18(1) of the Landlord and Tenant Act 1985 defines “service charge” as:
“…an amount payable by a tenant of a dwelling as part of or in addition to the rent-Section 19(1) of the Landlord and Tenant Act 1985 provides
(a) which is payable, directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord’s costs of management, and
(b) the whole or part of which varies or may vary according to the relevant costs”.
“Relevant costs shall be taken into account in determining the amount of a service charge payable for a period-Facts
(a) only to the extent that they are reasonably incurred...”
L was obliged under the terms of various leases of flats to keep the building in which the flats were situated insured in an insurance office of repute. The tenants (T) were obliged to contribute to the insurance premiums via the service charge.
L had incurred costs in respect of these insurance premiums for the previous three years. However, T had obtained other quotations indicating that similar cover was available on the open market for 75% less than the sums paid by L. T challenged the amount of premiums in the First-tier Tribunal. The FTT determine that the amounts payable by T were substantially reduced sums. L appealed to the Upper Tribunal.
The Upper Tribunal dismissed the appeal. The Tribunal considered a number of authorities and noted that in Forcelux Ltd v Sweetman  2 EGLR 173 it was held that the Tribunal ought to assess firstly whether the sums claimed were lawfully and appropriately recoverable, and then secondly whether in any event the sums claimed were reasonable. However, in Avon Estates (London) Ltd v Sinclair Garden Investments (Kensington) Ltd  UKUT 0265 (LC) it was suggested that the landlord had to prove either that the rate charged was the market rate, or that the contract was negotiated at arm’s length and in the market place.
On the test set down in Avon Estates, a landlord need only prove that it had conducted a proper process in arranging insurance. If it did so, an unreasonably high insurance premium would nevertheless be held to be reasonably incurred. However, the test in Forcelux suggested that in any event there ought to be an assessment of reasonableness.
In attempting to reconcile the authorities, the Upper Tribunal considered the recent case of Waaler v Hounslow LBC  EWCA Civ 45.
Although not a case which dealt with insurance premiums, the Court of Appeal in Waaler examined the meaning of reasonableness generally in the context of s19 of the 1985 Act. It was held in that case that first, the landlord’s decision-making process under the lease must be rational, made in good faith and consistent with the contractual purpose. However, a landlord must do more than act rationally when making decisions, otherwise s19 would serve no useful purpose. When assessing whether costs have been reasonably incurred, it was held that the Tribunal must bear in mind that the cost of the work is ultimately to be borne by the leasees.
In commenting on the decision in Forcelux, the Court of Appeal in Waaler approved of an approach which tested the outcome of the landlord’s decision-making process by reference to the market rates for similar insurance cover. The question of reasonableness is not simply a question of process, it is also a question of outcome.
Accordingly, the Upper Tribunal held that the question of reasonableness was a two-stage test. First, the decision to incur cost must be a rational one, but secondly the sum charged must be, in all the circumstances, a reasonable charge.
Of course, the landlord need not choose the cheapest cover, however the Tribunal in assessing reasonableness will assess:
On the facts of this case (and particularly given the disparity between the quotes obtained by the landlord and the tenant, which went unexplained by the landlord), the premiums charged were not reasonable.
- The terms of the lease and the liabilities to be insured;
- The landlord’s explanation of the process of selecting the policy and the steps taken to assess the current market;
- Whether any comparable cheaper policy is genuinely comparable by reference to its terms.
The old adage that “the landlord does not need to shop around for insurance” may no longer be correct. Indeed, it now seems that a landlord facing a challenge to insurance premiums will have to adduce positive evidence as to the steps taken to test the market. Further, whilst it is still open to a landlord with a large property portfolio to negotiate a block policy, that landlord must satisfy the Tribunal that doing so has not resulted in a substantially higher premium payable by the tenants without any commensurate compensating advantages.
It will be seen that the requirement to adduce positive evidence may mean that landlords will be well advised to call their insurance brokers as witnesses to the appropriateness and competitiveness of the policy relied upon.
Freeholder requiring management company to use nominated insurer
Berrycroft Management Co Ltd v Sinclair Gardens Investments (Kensington) Ltd
 1 EGLR 47
Court of Appeal
B and 13 others, each a management company and representative tenant of a block of flats, appealed against the refusal to grant a declaration that insurance premiums for leasehold flats were excessive and irrecoverable.
Alternatively they sought an order in terms of the Landlord and Tenant Act 1985 s.19 and s.30(A) that S were not entitled to recover expenditure and that the sums incurred by S were not costs reasonably incurred in the assessment of service charges in terms of the 1985 Act s.18 and s.19.
The respondent, S, acquired the reversions of each block of flats and new arrangements were made for the insurance of the buildings, requiring the management companies to insure with a nominated insurer who charged a higher premium than they could arrange.
The covenant required the management company:
"to insure .. the building .. 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 .. in the joint names of the landlord, the company and the tenant for their respective interests."B argued that there was no justification for the change in insurer, S had no right to nominate an insurance company and it was unreasonable that they should be required to pay more since the management companies were already insuring with insurers of repute. B argued that an implied term in the leases stated that the sum charged by the nominated insurer should not be unreasonable or, 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.
The Court of Appeal held that there was no term to be implied into the covenant restricting the landlord's right to effect insurance through whatever insurance office of repute the landlord may choose. The management company and tenants were protected by the requirement that the company should be one of repute (Bandar Property Holdings Ltd v JS Darwen (Successors) Ltd  2 All E.R. 305, Havenridge Ltd v Boston Dyers Ltd  49 E.G. 111 and Lord Tredegar v Harwood  A.C. 72 applied.
The fact that the rates proposed by the chosen company were higher than those the management company could have secured was irrelevant. On the facts, the quotations for insurance were competitive and not unreasonable.
Applied: Ustimenko v Prescot Management Compay Ltd  EWLands LRX_65_2004, para 19.
Distinguished: Cinnamon Ltd v Morgan  EWCA Civ 1616.
Sadd v Brown
 UKUT 438 (LC)
A landlord could not recover the cost of insurance premiums from the tenant when the lease contained a specific clause relating to the obligation to insure but omitted a specific clause requiring the reimbursement of the cost of doing so, notwithstanding that such a term would be reasonable and was probably omitted by mistake.
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