[2024] UKUT 72 (LC)

These proceedings began in the FTT on 29 July 2019 as an application by the leaseholders for a determination under section 27A, Landlord and Tenant Act 1985, of the reasonableness and payability of service charges paid in respect of insurance for the years 2010 to 2020.

Most unusually it took more than three years before the FTT was able to determine the application, finally issuing its decision in December 2022, after a hearing in September 2022. Part of that time was taken up in an unsuccessful attempt by the Landlords to argue that charges for certain years had been agreed and that the FTT no longer had jurisdiction, but much of the delay was caused by the refusal of the Landlords to disclose information about their insurance arrangements. Information which the Landlords did supply in 2020 in purported compliance with the FTT’s directions was later shown to be false (the FTT charitably described it as “woefully inaccurate”).

Until 2022 (i.e. for the whole of the period with which the proceedings are concerned) the Estate was insured under a block policy covering 40 properties belonging to the Yianis Group. Since then, it has been insured under a standalone policy. The Landlords had relied on an associated company, Westminster Management Services Ltd (WMS), to liaise with its insurance broker, Reich, which then placed the insurance for the Estate.

The Landlords themselves employ no staff and arrange their affairs through agents, and their evidence to the FTT dealt with the tasks which WMS performed on their behalf. Mr Paul Curtis, an employee of WMS and the Financial Controller of CREM, explained that the Landlords instructed WMS to obtain insurance. Mr Curtis personally performed many of the tasks which were required or delegated them to other members of WMS staff. These included liaising with the broker, negotiating premiums, reviewing policies, arranging valuations and administering claims. He explained that insurance arrangements for the Estate were complex and that only a small number of insurers were willing to participate. He provided an estimate of the time spent by WMS staff in connection with the insurance of the whole Yianis Group portfolio.

Mr Curtis’s evidence also referred to an application made by the Manager, then Mr Coates, in February 2018 to amend the management order to leave him in charge of insurance arrangements. Mr Coates had proposed that he be entitled to a fee of up to 30% of the premium for placing the insurance. This would be split equally between the manager and the broker used by his firm. Mr Curtis said that he assumed this split reflected an agreement between Mr Coates and the broker concerning the insurance related tasks which they would each carry out.

The leaseholders’ case before the FTT was that fees and commissions were paid to the Landlords by the insurer as a discount in return for insuring the whole of the Yianis Group portfolio with them. Such a discount reduced the cost of the insurance and should, in principle, be passed on to the leaseholders, as had happened in the case of Williams v London Borough of Southwark (2001) 33 HLR 22. As for the tasks said to have been performed by WMS, these were no different from tasks which would usually be undertaken by a managing agent in return for a fee which was less than WMS and the broker were believed to retain from the commissions.

At the hearing before the FTT the Landlords advanced no positive case about the quantum of the fees and commissions which they and their agents had received. They also declined to agree the apportionments and estimates which the leaseholders’ representative, Angela Jezard, had “reverse engineered” from the minimal material eventually provided by CREM and their insurance brokers, Reich. From that material Ms Jezard estimated that during the ten years under consideration more than £2million had been paid by insurers to Reich and to WMS (in addition to brokers’ fees paid to Reich). This represented more than 37% of the total premiums apportioned to the Estate. During the same period the average annual cost of management paid to agents for managing the Estate was £180,000. The leaseholders had therefore been charged more for the placing and administering of the insurance policies than they had for the management of the entire Estate.