Decision Nº LRX 31 2013. Upper Tribunal (Lands Chamber), 10-06-2014
| Jurisdiction | UK Non-devolved |
| Judge | Judge Edward Cousins |
| Date | 10 June 2014 |
| Court | Upper Tribunal (Lands Chamber) |
| Judgement Number | LRX 31 2013 |
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UPPER TRIBUNAL (LANDS CHAMBER)
UT Neutral citation number: [2014] UKUT 0261 (LC)
UTLC Case Number: LRX/31/2013
LANDLORD AND TENANT - service charges – whether cost of insurance against a terrorist incident is a recoverable head of expenditure under terms of lease - true construction of terms of lease.
IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE FIRST-TIER TRIBUNAL (PROPERTY CHAMBER) (LEASEHOLD VALUATION TRIBUNAL SOUTHERN RENT ASSESSMENT PANEL)
and
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BATH BUILDING (SWINDON) MANAGEMENT COMPANY LTD
(2) VARIOUS LEASEHOLDERS AS IDENTIFIED IN THE LVT DECISION
Respondents
Re: Bath Building, 40 Bath Road, Swindon, Wiltshire, SN1 4AT
Before: Judge Edward Cousins
Sitting at: 43-45 Bedford Square, London WC1A 3AS
on
27 February 2014
Mr Justin Bates, of Counsel, instructed by Hazlevine Ltd, for the appellant
The Respondent appeared in person through its Director, Mr Martin Whale
CROWN COPYRIGHT 2014
The following cases are referred to in this decision:
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 89
Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101
Commonwealth Smelting v. Guardian Royal Exchange Assurance [1984] 2 Lloyd’s Rep. 608, at page 612, affd [1986] 1 Lloyd’s Rep 121
Enlayde Ltd v Roberts [1917] 1 Ch 109
Edwards v Baristow [19561 AC 14
Shersby v Greenhurst Park Management Ltd [2009] UKUT 241 (LC)
R v LB Tower Hamlets [2013] EWHC 480 (Admin)
DECISION
THE BACKGROUND TO THE APPEAL
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This appeal concerns a building known as the Bath Building, 40 Bath Road, Swindon, Wiltshire, SN1 4AT (“the Building”). It is a four-story detached building constructed in the 1980’s, and comprises 13 flats. The freehold owner of the Building is Qdime Ltd (“Qdime”), the appellant in these proceedings. The Respondents are respectively (1) The Bath Building (Swindon) Management Company Ltd, being the management company responsible for providing certain services to the flat (“the Management Company”), and (2) the leaseholders of 11 of the 13 flats.
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The original application to the Leasehold Valuation Tribunal (“the LVT”) made by the Respondents dated 18th July 2012 sought to challenge a number of items of service charge expenditure. On 23rd January 2013 the LVT handed down its decision (“the LVT Decision”). Subsequently on 14th February 2013 Qdime sought permission to appeal from the LVT limited to two aspects of the LVT Decision, namely its treatment of:
(1) terrorism insurance for the years 2010/2011, 2011/2012 and 2012/2013;
(2) cleaning costs.
3. On 18th February 2013 the LVT refused permission to appeal. The observations made by the LVT in its decision state that the grounds of appeal were effectively no more than a disagreement with the Tribunal’s findings and its decision. It said that the grounds of appeal represented a re-statement of the submissions made by Qdime in relation to the original application, which the LVT said were considered in detail and at length in its reasons dated 23rd January 2013. It was on this basis that the LVT came to the conclusion that the grounds of appeal set out no basis for any reasonable prospect of a successful appeal.
4. Thereafter, on 1st March 2013 Qdime sought permission to appeal the LVT Decision from the Upper Tribunal (Lands Chamber) on the same two grounds of appeal previously rejected by the LVT. In his decision dated 12th June 2013 the Deputy President granted permission to appeal on the first ground as to whether the costs of insurance against a terrorist incident was a recoverable head of expenditure under the lease in the years 2010-2013, but refused permission to appeal on the issue of the cleaning costs. The Deputy President made the following observations;-
“The applicant has a reasonable prospect of success in persuading the Upper Tribunal that the LVT misinterpreted paragraph 6 of schedule 5 of the lease, and the issue is of significance for these and future years…. The appeal will be by way of a review with a view to re-hearing”.
THE CASE FOR QDIME
5. The crux of Qdime’s submissions is that the LVT has erred in law in the LVT Decision. Qdime submits that terrorism insurance is recoverable as a service charge by reason of the the fact:-
(1) The wording of the leases is such that Qdime is obliged to procure terrorism insurance as part of its obligations to insure the Building; or in the alternative
(2) Qdime has in any event exercised its reasonable discretion in procuring terrorism insurance in accordance with the terms of the leases.
The lease provisions
6. The leases of the flats contained within the Building are all in common form. As granted, the leases were made between (1) the original reversioner, Linden Homes Western Ltd (“the Landlord”), (2) the Management Company, and (3) the individual leaseholders. Qdime is the assignee of the reversion immediately expectant upon the terms granted under the leases, and therefore is the current landlord under the terms of the leases. The lease granted in respect of flat 3 to Ms Irena Jakubowski-Birch has been utilised as the standard lease for the purposes of the appeal (“the Lease”). It is included at pages 834 to 880 in the bundle of documentation prepared for the appeal hearing (“the Bundle”), to which reference will be made in this Decision.
7. By clause 4 of the Lease the Landlord covenanted to “... observe and perform the obligations set out in schedule 5...” Paragraph 6 of schedule 5 provides for the Landlord:
“To keep the Building including the Demised Premises insured to its full reinstatement value against loss or damage by fire and the usual comprehensive risks in accordance with the CML recommendations in that respect from time to time and such other risks as the Landlord may in its reasonable discretion think fit to insure against…”
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In accordance with the terms of paragraph 16 of schedule 7 (part 2) to the Lease the Company covenanted with the Landlord to pay on demand:
“…the costs of the insurance policy put in place by the Landlord in accordance with paragraph 6 of schedule 5…”
By virtue of the provisions contained in schedule 4, part 2, the leaseholders of the Building ultimately pay these costs as part of the service charge paid to the Management Company as being expenses reasonably and properly incurred in each Maintenance Year (as defined).
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In July 2012, the Managment Company and eleven of the leaseholders issued proceedings in the LVT disputing, inter alia, part of the cost of the insurance policy. In particular, they disputed the “terrorism insurance” element of the policy, which they asserted was unreasonable.
10. That part of the LVT Decision dealing with terrorism insurance is contained paragraphs 136 to 138 (at pages 140 to 143 of the Bundle). In summary, the findings of the LVT are as follows:
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the Management Company is contractually obliged to pay an insurance premium;
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however, this only extends to terrorism cover if the Lease expressly or impliedly so permits or requires it;
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for the purposes of the case terrorism cover means “acts or persons acting on behalf of or in connection with, any organisation which carries out activities directed towards he overthrowing or influencing, by force or violence, of Her Majesty’s government in the United Kingdom or any other government de jure or de facto” (as defined in the Pool Re scheme);
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Paragraph 6 of schedule 5 contains no express obligation to insure against terrorism, but provides for cover in respect of three categories of risk, namely loss or damage by fire, the usual comprehensive risks, and such other risks as the Landlord may in its reasonable discretion think fit to insure against.
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The covenant to insure against loss or damage by fire does not include terrorism, and the covenant to insure against usual comprehensive risks also does not include terrorism. Further, there was no evidence of any particular risk of terrorist activity;
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There was no evidence of any “conscious or express decision” to insure against terrorism, and the Landlord had not exercised any discretion to decide to insure the Building against terrorism for the purposes of paragraph 5 of shedule 6;
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If that interpretation is incorrect, then it is not a...
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