[2025] UKUT 173 (LC)

Each of the leases of flats in Pinewood House includes a covenant by the landlord requiring him to insure the building with reputable insurers against loss or damage caused by specified risks. The cover was to be for an amount not less than the full cost of reinstatement of the building “as reasonably determined by the Landlord’s insurance provider from time to time”. The insured risks were not unusual or specialist, the whole list comprising: fire, explosion, lightning, earthquake, storm, flood, bursting and overflowing of water tanks, apparatus or pipes, escape of water or oil, impact by aircraft and articles dropped from them, impact by vehicles, riot, civil commotion, malicious damage, theft or attempted theft, falling trees and branches and aerials, subsidence, heave, landslip, collision, accidental damage to underground services, public liability to anyone else, loss of rent, service charge and insurance rent and any other risks which the Landlord reasonably decided to insure against from time to time.

The landlord’s insurance covenant also required that he confirm the gross cost of the annual insurance premium to the tenant, stating how her contribution had been calculated and when it was due. He was to provide her with a copy of the insurance policy and schedule on request, notify any changes in cover, and procure that her interest and that of her mortgagee were noted on the insurance policy “either by way of a general noting of tenants’ and mortgagees’ interests under the conditions of the insurance policy or … specifically”.

Ms Syed had expressed concern about the insurance arrangements for the building since at least 2017. In that year she had twice requested a copy of the insurance policy, which was not provided. She had occasionally been sent copies of the most recent policy schedules. Correspondence with Winkworths, who managed the property for a time, indicates that she was shown its file and sent copies of the certificates for 2018 and 2019. The certificates for 2021-22 and 2023-24 were shown to the FTT. These confirmed that the building was insured by a well-known insurance company but they named only Mr Webber as the insured and did not list all of the insured risks covered by the policy (referring simply to the sums insured for property damage, contents, loss of rent and public liability).

In her application to the FTT Ms Syed said that it was unclear whether the building was sufficiently insured or whether her interest was covered. She suggested that the building had not been revalued since 2010. She did not allege that the building was underinsured, nor that the premium was unreasonable. In his response Mr Webber stated that in 2019 the building had been covered for rebuilding to a value of £1.54m while in 2023 the figure was £2.18m.

The FTT found that Ms Syed had received her first service charge demand on 16 February 2017. It determined incorrectly that the 18 month time limit imposed by section 20B, Landlord and Tenant Act 1985 prevented the recovery of service charges in respect of costs incurred earlier than 16 August 2016. That was a miscalculation, and deprived Mr Webber of charges for the period of 12 months from 16 August 2015. Those charges included the 2016/17 insurance premium of £1,592.59, of which Ms Syed’s proportion was £132.71.

As far as subsequent years were concerned, the FTT accepted Mr Webber’s evidence that the building had been insured at all times and that the premiums shown in the annual demands had been paid. But he had not provided a copy of the insurance policy to the FTT and it was satisfied that he had failed to demonstrate that Pinewood House was adequately insured for reinstatement costs or against all the risks required by the lease. Nor had Mr Webber shown that the leaseholder’s (and any mortgagee’s) interest had been noted by the insurer on the policy.

The FTT said that Mr Webber had confirmed that there had been no “independent valuation” to determine rebuilding costs and said that he had “belatedly” sought advice from the insurer which resulted in an increase in cover from £1.67m (the figure shown on the 2021 insurance schedule) to £2.18m (the figure on the 2023 schedule). It did not refer to his evidence that the figure had been £1.54m in 2019.

Having made those findings the FTT continued:

“Accordingly, the Tribunal finds that Mr Webber has not demonstrated that the premiums charged to the service charge account were reasonably incurred. It therefore discounts them by 100% across all years […]”.

The FTT accepted that the building had been insured each year and that the premiums had all been paid. It made no finding that the charges in any year were unreasonable, nor had Ms Syed suggested that they were. It based its decision that nothing should be paid for the years 2017 to 2023 on Mr Webber’s inability to demonstrate that the sum insured was adequate, or that Ms Syed’s interest was noted on the policy, or that the full list of insured risks was covered. From those assumed defaults it concluded that Mr Webber had not demonstrated that the premiums were reasonably incurred and disallowed them in full.

In Waaler v London Borough of Hounslow [2012] EWCA Civ 45 at [37] Lewison LJ pointed out that “whether costs have been reasonably incurred is not simply a question of process: it is also a question of outcome.” On the evidence, the outcome which the FTT found had been achieved was that the building was insured with reputable insurers and that the amount insured increased from time to time. There was no evidence that the sum insured was inadequate. Ms Syed had not attempted to make a case that the reinstatement sums for 2021 or 2023 shown on the insurance schedules were too low; nor had she produced any evidence casting doubt on the adequacy of the figure which Mr Webber had asserted in his evidence for 2019 and about which the FTT made no finding. The pattern suggested by the evidence was of regular biennial reassessments of the reinstatement value of the property, at least since 2019.

Mr Webber was criticised by the FTT for not obtaining independent revaluations. But the lease did not require that the reinstatement cost be based on the view of an independent valuer. It required that the sum be such as was reasonably determined from time to time by the insurer. The FTT appears to have accepted that that was what had happened in 2023 and there was no evidence that it had not also happened in 2021 (the other documented year when the reinstatement value increased) or in 2019, as Mr Webber claimed.

As for noting Ms Syed’s interest on the policy, the lease did not require insurance in joint names, nor did it require that the tenant’s interest be specifically noted; a “general noting” was all that was required. The FTT had not seen the policy but knew that it was placed with a reputable insurer which was aware that the building was a block of flats let to third parties, because the insurance certificates said so. It is standard practice in the insurance industry for a policy for such a building to incorporate a general interest clause which protects the interest of the leaseholders and their mortgagees. A policy including such a clause was what the lease required.

The FTT was prepared to assume from Mr Webber’s failure to produce the policy that the interests of leaseholders were not noted in the normal way, and that it did not cover the usual risks which such policies cover. It is not necessary to consider how likely it is that policies placed by a well-known broker with a reputable insurer were on the unusual terms which the FTT imagined. Section 19(1)(a), Landlord and Tenant Act 1985 permits the recovery of relevant costs of insurance as part of a service charge “to the extent that they are reasonably incurred”. The FTT did not consider to what extent the costs had been reasonably or unreasonably incurred. Had it done so it could not have found that the cost would have been lower if the policy had been on different terms from those which it assumed. The terms required by the lease are no more than are standard. The building was insured with a reputable insurer at a premium which was not suggested to have been unreasonable. There was neither any claim, nor any evidence, nor any reason to believe that the premiums were not reasonable for the cover obtained and in the absence of any such suggestion there was no basis for a finding that not a single penny of those premiums had been unreasonably incurred.

Ms Syed’s complaint was not about the premium; her complaint was that she did not receive a copy of the insurance certificate every year when she asked for it and had never been shown the policy. Those were entirely legitimate complaints, but they did not justify the FTT’s conclusion that the whole cost of insurance had been unreasonably incurred. I am satisfied that the FTT’s finding that the property was not insured to the sum required by the lease was not supported by the evidence, and that the failure of Mr Webber to demonstrate that Ms Syed’s interest was noted generally on the policy or that the defined risks were covered did not justify its conclusion that no part of the premium was payable.

On the appeal Ms Syed herself did not seek to maintain that extreme position, proposing instead that the premium should have been reduced. She did not suggest what reduction would have been appropriate and there is no evidence to support one. For all the incompetence and obstruction demonstrated by Mr Webber, there is no reason to think that Ms Syed was charged more than a reasonable amount for the cover obtained. The law provides other remedies for her complaints, the most obvious being an application to the FTT to appoint a manager to take over from the landlord, with others including prosecution for breach of the insurance obligations in the Schedule to the Landlord and Tenant Act 1985, or a claim for damages or specific performance of the terms of the lease.

For these reasons I allow the appeal on ground 2. Adopting the same approach as the FTT to section 20B, 1985 Act, but allowing the full 18 month period rather than only six months, the sums payable by Ms Syed in respect of insurance were as follows: 2015/16 - £127.70; 2016/17 - £132.71; 2017/18 - £151.28; 2018/19 - £157.83; 2019/20 - £170.72; 2020/21 - £189.34; 2021/22 - £212.92; 2022/23 - £263.94. The total additional sum is therefore £1,406.44.