Douglas v RMB 102 Ltd, Eyre & Johnson Ltd (t/a E&J Estates) [2023] UKUT 207 (LC)
7 December
The Upper Tribunal cited seven authorities in this appeal from the FTT’s decision to strike out Mr Douglas’s application under section 27A, Landlord and Tenant Act 1985:
Berrycroft Management Co Ltd v Sinclair Gardens Investments (Kensington) Ltd [1997] 1 EGLR 47
Cinnamon Ltd v Morgan [2001] EWCA Civ 1616
Williams v Aviva Investors’ Ground Rents GP Ltd [2023] 2 WLR 484
Oakfern v Ruddy [2006] EWCA Civ 1389
Gateway Holdings (NWB) Ltd v McKenzie [2018] UKUT 371 (LC)
Bandar Property Holdings Ltd v J S Darwen (Successors) Ltd [1968] 2 All ER 305
Havenridge Ltd v Boston Dyers Ltd [1994] 2 EGLR 73
Insurance is very topical right now, and this case contains plenty of snippets from the legal casebook on that issue.
Background
Boswell and Hitherwood Court are two blocks of flats in London. Mr Douglas’s flat is in Boswell Court, and he was joined by 48 other leaseholders from both blocks in the FTT and Upper Tribunal.
RMB 102 Ltd (“RMB”) is the freeholder of both blocks. Eyre and Johnson Ltd is RMB’s insurance agent. Both are part of the E & J Estates Group.
Under the tripartite leases, the landlord was entitled to nominate the insurance company from which the management company was to obtain insurance.
The service charge paid by the leaseholders included a contribution towards the cost of the insurance.
The issue in this appeal is whether the First-Tier Tribunal (Property Chamber) (FTT) was right to strike out an application brought by a group of leaseholders under section 27A, Landlord and Tenant Act 1985, for a determination of the amount of the service charge payable by them for that insurance.
The leaseholders applied to the FTT for a determination of the amount to which they should be contributing to the cost of insurance, which had increased by 180% compared to the previous year. They had noticed that the increase had been about 17% in six other blocks in the close vicinity.
The landlord applied to strike out their application, and the FTT did so.
In the Upper Tribunal, Martin Rodger KC observed, drily, that:
The FTT gave permission to appeal, remarking that the law on the ability of leaseholders to challenge insurance charges was complex and that the issues were potentially of wider significance. It might be thought that those were both good reasons why the application ought not to have been struck out and which would have allowed any complex issues which do arise to be considered on the basis of established facts.
Anyway.
The insuring obligation
The leases provided as follows in relation to insurance:
“The Company will at all times during the said term (unless such insurance shall be vitiated by any act or default of the Lessee) insure and keep insured the Block (including lifts if any) and the contents of the Common Parts in the names of the Lessor the Lessee their mortgagees (according to the respective estates and interests) and the Company against comprehensive risks with an insurance company of repute nominated by the Lessor and through the agency of the Lessor …”
The effect of the above was that, the leases being tripartite, it fell to the management company named in the lease to provide buildings insurance for the leaseholders.
The freeholder landlord was however the party entitled:
to nominate the insurer;
to act as agent of the Company in connection with the insurance, and
to step into the management company’s shoes, should the management company fail to comply with its obligations
The FTT proceedings
The leaseholders brought their application against E&J Estates, naming that organisation as the freeholder.
They later applied to add:
RMB, and
Penult Capital Partners Ltd (another company in the E&J Estates group)
The leaseholders made that application, said Martin Rodger KC:
… in the mistaken belief that the FTT could only direct the disclosure of information from those involved in procuring the buildings insurance if they were parties to the application. In fact, the FTT has power under rule 20 of its procedural rules, on the application of a party or on its own initiative, to require any person to attend as a witness at a hearing or to order any person to answer any question or produce any documents in their possession or control relating to any issue in the proceedings.
In the event, the FTT added RMB alone, and directed that a case management hearing would be held.
A week before that hearing, RMB and E&J applied to strike out the leaseholders’ application on the ground that there was no reasonable prospect of the application succeeding because the costs were not incurred on behalf of the landlord.
They cited Berrycroft Management Co Ltd v Sinclair Gardens Investments (Kensington) Ltd [1997] 1 EGLR 47, a decision of the Court of Appeal.
The FTT struck out the leaseholders’ application and declined to make a costs protection order under section 20C of the Landlord and Tenant Act 1985.
The Landlord & Tenant Act 1985
Martin Rodger KC reviewed the relevant provisions of the Landlord and Tenant Act 1985:
section 18;
section 19;
section 27A;
section 30, under which a person who has a right under a lease to enforce a charge which varies according to the cost incurred by that person in providing that service is a “landlord” for the purposes of the Landlord and Tenant Act 1985.
That definition encompasses management companies;
section 30A;
the schedule to the Act, which addresses insurance.
The cases
Martin Rodger KC then turned to the case law, reviewing Berrycroft and Cinnamon v Morgan [2001] EWCA Civ 1616 in some detail.
He reminded himself of the breadth of the FTT’s powers on an application under section 27A of the Landlord and Tenant Act 1985, citing:
Williams v Aviva Investors’ Ground Rents GP Ltd [2023] 2 WLR 484
Gateway Holdings (NWB) Ltd v McKenzie [2018] UKUT 371 (LC)
Oakfern v Ruddy [2006] EWCA Civ 1389
Why include the landlord?
RMB argued that there was no point in including it as a party to the proceedings, but Martin Rodger KC gave three reasons why it should be joined:
The leaseholders covenanted with the landlord to pay a service charge, and it was important that the landlord therefore be bound by the FTT’s determination of the amount payable;
Given that the landlord was entitled to forfeit the lease if the leaseholders were in breach of their obligations, it was again key that the landlord be bound by the FTT’s determination of the amount payable by them;
The leaseholders may wish to use the FTT’s decision about the amount of insurance payable for other purposes such as an application for the appointment of a manager under s.24, Landlord and Tenant Act 1987.
The outcome of the appeal
The appeal succeeded.
Martin Rodger KC therefore found that the insurance was a charge incurred by or on behalf of a landlord, because it was incurred by or on behalf of the management company at Boswell Court.
The FTT had therefore been wrong to strike out the leaseholders’ application against RMB.
Martin Rodger KC said:
It … seems to me significantly to overstate the case to assert, as the respondents did before the FTT, that the leaseholders’ prospects of obtaining a determination under section 27A had no realistic prospect of success. On the contrary, there seems to me to be no reason in principle why such a determination should not be available in proceedings to which the landlord is a party even where the service charge is not payable to the landlord. Nor is it an abuse of process for the leaseholders to bring the application against the landlord. For the reasons I have given, the landlord is an appropriate party to the proceedings.
Cold comfort?
Martin Rodger KC was at pains to emphasise that nothing in the outcome of the appeal:
should give the leaseholders any comfort as to their prospects of establishing that the service charges payable by them to the management company have been unreasonably incurred. The authorities demonstrate that where a landlord is entitled to nominate an insurer it is not required to show that the premium charged by its nominee is the cheapest that could be found in the market. In this case the landlord is obliged to nominate an insurance company “of repute” and the management company must then place the policy with that insurer “through the agency of the Lessor” (quite what that expression means and whether, for example, it entitles the landlord to include the building in a block policy with other buildings in its portfolio, were not questions raised in the appeal).
He illustrated his point with more case law:
Bandar Property Holdings Ltd v J S Darwen (Successors) Ltd [1968] 2 All ER 305
Havenridge Ltd v Boston Dyers Ltd [1994] 2EGLR 73
That said, remitting the case to the FTT to decide the amount of service charge payable by the leaseholders for insurance, he drew his decision towards an end with these words:
There is no doubt that the comparison which the leaseholders are able to make in this case between the rate of increase of their insurance premiums since 2019, and the rate of increase in premiums payable by leaseholders of similar properties on the same estate in blocks owned by different freeholders, is striking and calls for an explanation.