[2024] UKUT 72 (LC)

Canary Riverside (the Estate) is a large residential and commercial estate in the Docklands area of East London. It comprises five residential towers containing 325 flats and apartments let on long leases, and a hotel and other commercial units including cafes, restaurants and a gym, and both public and private car parking areas.

The first appellant, Octagon Overseas Ltd (Octagon), owns the freehold of the Estate. All five of the tower blocks were originally leased to the second respondent, Canary Riverside Estate Management Ltd (CREM), under a headlease granted in 1997 (the Headlease), and it still holds the same Headlease over four of the blocks. I will refer to the appellants, jointly, as the Landlords. The respondents are the leaseholders of 98 apartments in the four CREM blocks and are members of the Residents’ Association of Canary Riverside (RACR). The leaseholders of 46 flats had originally joined in the making of the application and others joined later; a list of the respondents is appended to this decision.

The management of the Estate has generated a great deal of litigation in the FTT and in this Tribunal between the Landlords and the residential leaseholders and others. In 2016, on the application of the residential leaseholders, the FTT appointed a manager under section 24, Landlord and Tenant Act 1987. The manager is not involved in this appeal because he is not responsible for the insurance of the Estate or the management of its commercial elements. Those remain in the hands of the Landlords.

The Headlease places the primary insurance obligations on the Landlord (now Octagon), with a right to recover the cost of doing so from the Tenant (now CREM). The relevant provisions are as follows.

By clause 6.1, the Landlord covenanted to:

“[…] insure and keep insured, or procure the insurance of, with some insurance company (or companies) of repute or with Lloyd’s Underwriters and through such agency as the Landlord may from time to time determine (subject to such exclusions excesses and limitation as may from time be imposed by the insurers in the name of the Landlord (whether or not with others):

(i)

The shell and core of all buildings and structures comprised within [the Estate] […];

(ii)

loss of the rents reserved […];

(iii)

any engineering and electrical plan and machinery […];

(iv)

property owner’s liability and such other insurances as the Landlord may from time to time deem necessary to effect.”

Clause 6.3. of the Headlease is headed “Commission and restriction on Tenant insuring” and provides:

“6.3.1

The Landlord shall be entitled to retain and utilise as it sees fit any commission attributable to the placing of the insurance required by Clause 6.1 and the payment of any insurance sums

6.3.2

The Tenant shall not take out any insurance in respect of the matters which the Landlord is to insure or procure the insurance of under Clause 6.1 provided that this Clause 6.3 shall not prevent the Tenant from insuring in accordance with Clause 6.1 to the extent that and for as long as the Landlord fails to insure or procure the insurance in accordance with Clause 6.1 and the Landlord shall pay to the Tenant on demand the proper cost of any such insurance effected by the Tenant in such circumstances.”

By clause 4.1(b) of the Headlease, the Tenant covenants to pay “the Rents”, one of which is the “Insurance Rent” defined by clause 1 as:

“a due proportion to be fairly and properly determined by the Landlord of all sums (including insurance tax, the cost of periodic valuations for insurance purposes and any VAT or other tax which may become payable in connection with the supply to the Landlord of goods or services relating to insurance (so far as not recoverable by the Landlord or any management company (as the case may be) as an input credit) which the Landlord shall from time to time pay in respect of the insurances required by Clause 6.1(i), (iii) and (iv) (due allowance being made for such part thereof as may properly be included as part of the costs and expenses referred to in the Fourth Schedule) and the whole of the sums which the Landlord shall from time to time pay for insuring against loss of rents pursuant to Clause 6.1(ii).”

The occupational leaseholders are obliged to reimburse certain costs of services and insurance incurred by CREM. By clause 23.2 of the standard form of underlease for each of the apartments (the Underlease), the Tenant covenants to pay on account a specified proportion of the “Estimated Building Expenditure” which by clause 24.3.8, includes: “The Insurance Rent (as defined in the Headlease) but excluding a due proportion thereof to be fairly and properly determined by the Landlord thereof which is referable to the insurance of the Car Park”.