Service Charges: Whether insurance rent was payable where insurance charge demands were not valid (Assethold Ltd v Hoye and another – 2022)

Where demands for insurance rent are found to not comply with lease provisions, are leaseholders liable to cover the costs of the premium through insurance rent?

The background

In Assethold Ltd v Hoye and another [2022], the garden of a house had been sold and two flats constructed on it. The flats were attached to the house and shared its entrance. The freehold owners of the flats and the house agreed a deed of easement, granting access to the freeholder of the house to the front door through a shared entrance as well as parking and services rights.

The leaseholders of the flats were required to pay rent, service charge and insurance rent which, by its definition, was a service charge under s.18(1) of the Landlord and Tenant Act 1985.

The leaseholders disputed a number of service charge items, including insurance charges, and brought an application in the First-tier Tribunal for determination as to reasonableness and payability of service charges over a 3-year period. Their argument stated that service charge demands did not comply with lease provisions, omitting details including the gross cost of insurance exclusive of commission, the date the gross premium was payable and how insurance rent had been calculated. The leaseholders argued that the demands were therefore invalid and insurance rent not payable.

In the FTT, the court found that notices were not compliant and that therefore demands were invalid and insurance charges not payable until demands were re-served. Further, the FTT found that the policies themselves may not be complete, by failing to account for use of shared common parts with the adjacent house. No evidence could be presented that the insurance broker had been made aware of the shared access, although the landlord argued that the broker had been aware of it. If the insurance policy was invalid, the FTT held that there could be no requirement for the leaseholders to pay the premium. Leave to appeal was granted to the freeholder.

The decision

The Upper Tribunal (“UT”) found in favour of the freeholder, agreeing that the insurance rent demands were valid and reasonable.

Considering whether the FTT decision had been correct, the UT found that the FTT had no evidence presented to it that the insurance policy was invalid and it could only speculatively suggest that the shared access was material to the insurance policy. The FTT had not been able to reach a decision on this point on the evidence available, and the UT overturned the finding that insurance was invalid or repudiated.

The UT further found that service charge demands, including elements of insurance rent, were valid. Because the FTT had not been able to make a judgment on the validity of the insurance policy on the evidence available to it, the FTT’s decision that insurance rent demands were unreasonable would also be set aside; the UT found that charges could not be unreasonable on this ground.

The FTT had, however, stated the amount it considered reasonable for the leaseholders to be charged in respect of insurance rent. The freeholder did not have permission to appeal this aspect, and so this decision was upheld.

Advice and action for landlords

The FTT’s decision that insurance rent demands were invalid was set aside because the FTT had speculated as to the validity of the insurance policy, rather than making a finding based on evidence before it. Because the FTT was unable to conclude that insurance was repudiated, its finding that demands were unreasonable was also set aside.

Although the UT’s judgment turned on a more technical point, landlords are advised to ensure that insurance policies cover all material aspects, and that insurance brokers are notified of any unusual easements or other rights granted or enjoyed. Where an insurance policy is deemed to be repudiated or invalid, this decision is indicative that insurance rent demands may be deemed unreasonable where the policy is insufficient.