Reasonableness of insurance costs

[Preston]

Hi all

I and some fellow leaseholders have recently submitted an LVT application challenging the reasonableness of certain service charges, including insurance. Part of our argument is that the landlord has repeatedly failed to provide, or was very late in providing, insurance summaries, after formal requests to do so under section 30A of the Landlord and Tenant Act 1985. Over the last 5 years we have been unsure that insurance has been in place for around 70% of the time. We have arranged our own insurance for a brief period during that time, but generally have been unable to find insurers willing to take the business.

My question is, is anyone aware of any cases we can cite in support of our claim? We are particularly interested in cases which deal with the issue of failure to provide information and whether this can have any bearing on the reasonableness of charges levied.

I have trawled a number of LVT decisions but as yet have been unable to find anything particularly relevant.

Thanks for any help you are able to give.

Preston

[sgclacy]

what is the sum assured and the premium. Also what is the first part of the post code

[Preston]

what is the sum assured and the premium. Also what is the first part of the post code

Hi

Buildings sum insured is around £2 million. Premium about £4,000. Post code NE46.

I'm interested in your comments on the insurance provided, but our argument, though, isn't about the level of insurance, but rather that we have been billed (very late) for insurance we never new we had and that the landlord refused or failed to tell us about, despite many requests.

Preston

[Donkin]

Would seem high

£600,000 premium £500 NE30 (North Shields)

[Preston]

Would seem high

£600,000 premium £500 NE30 (North Shields)

Wow, that sounds cheap. Do you know who that is with?

[Donkin]

Wow, that sounds cheap. Do you know who that is with?

Norwich Union Direct - got a discount once the value went over £500,000

[Brevent]

The issue is not whether they are late in deliverying copies of certificates, etc. Surely its the reasonableness of the insurance costs that is the basis of the LVT......

You may actually find that whilst they place the insurance, there is not provision under the terms of the lease for them to do so in the first instance.

PM me the terms of your lease referring to the insurance as you may well find that your landlord is acting outside the terms of the lease in regard to insurance, which is surprisingly common by professional ground rent investors across the UK because it literally pays them to....with the commissions that they receive, hence the increased premiums to pay for this.

[andydd]

Norwich Union Direct - got a discount once the value went over £500,000

Mine is 240,000 for £1250 !!..South East, that is Norwich union too.

[Donkin]

The £500 is the premium for three flats in a converted Victorian Townhouse.

Flat A => £220,000
Flat B => £350,000
Flat C => £280,000

combined total £850,000 premium £500. North Shields is not a particularly desirable area. :( Car insurance calls it a "high crime area".

[Preston]

The issue is not whether they are late in deliverying copies of certificates, etc. Surely its the reasonableness of the insurance costs that is the basis of the LVT......

You may actually find that whilst they place the insurance, there is not provision under the terms of the lease for them to do so in the first instance.

PM me the terms of your lease referring to the insurance as you may well find that your landlord is acting outside the terms of the lease in regard to insurance, which is surprisingly common by professional ground rent investors across the UK because it literally pays them to....with the commissions that they receive, hence the increased premiums to pay for this.

Hi

Thanks for your interest. You are of course correct that it is usually the cost of the insurance that is in dispute. We have three arguments:
a) the cost of the insurance
b) the fact that the insurance includes cover for "loss of rent"
c) Our main argument is that part of the benefit of part of the benefit of insurance is the peace of mind that it provides; we have not enjoyed that peace of mind, because for much of the last 5 years we have been unsure whether insurance has been in place because of the landlord's failure to provide information. Our contention is that this goes to the test of reasonableness. Unfortunately, I have not managed to find any precedents to support this contention, so I was hoping someone else might have come across a similar argument in earlier cases.

Anyway, thanks very much for offering to give your view on the lease. The relevant clause reads:


The Lessor shall insure the Property and keep the same insured in the joint names of all the persons having any interest therein against loss or damage by such risks (but to include fire aircraft storm and tempest) as the Lessor thinks fit in an insurance office of repute to an amount equal to the full replacement value plus the gross rateable value thereof and shall also take out and keep on foot in the said names a Policy of Insurance in an Insurance Office of repute covering liability for injury to persons on the Property and shall make all payments necessary for those purposes within seven days after the same become payable and shall produce to the Lessee on demand the Policies of such insurance and the receipt for every payment PROVIDED THAT only ten-fifteenths of the premium or premiums payable in respect of such Insurance Policy or Insurance Policies shall be borne by the owners for the time being of the flats in the Property.

The capitalisations are, by the way, inconsistent but are reproduced accurately.

[Gordon999]

1. If you send a written request to the freeholder for a summary of the cover by the building insurance policy by recorded delivery to prove the request date , you can get details within 30 days. Failure to comply is a criminal offence and you can report the offence at the local Magistrates Court. Once you have the policy details , you can contact the broker and check the policy starting dates etc, claims record and whether a clause is included to say "the interests of the leaseholders and their mortgage lenders are automatically noted." You can contact other brokers and get alternative quotes based on identical cover.( LVT will only compare if the policy cover is identical )

You can also ask the freeholder for a declaration of commission taken from the contributions paid by the leaseholders.

2. "Loss of rent" for 24 months ( and public liability ) is quite common on block of flats building insurance.

3. Normally in a block of flats , the entire premium is paid by the leaseholders - is there 5/15ths paid by the lessor or a ground floor shop ?

[Brevent]

Thanks for the lease wording relating to insurance. As you write, your Landlord arranges the policy and apportions the relevant part of the premium to your service charge account.

Obviously as a policyholder (e.g. someone who benefits from the policy in the event of a claim plus the fact you pay towards the premium) you are entitled to a copy of the policy schedules and certificates. Under the terms of the lease they are due to you quite promptly after settling your portion of the insurance.

As a policyholder you are also entitled to ask the broker to disclose the commission they receive and what part of their commission element they return to the Lessor. You should put the case at a LVT that this discount/rebate should be credited back to the L&T service charge account.

Loss of Rent (depending on the policy wording) is very worthwhile if you sub let and the apartment becomes unihabitable for any insured reason. Hopefully your policy also covers 'alternative accommodation' in case you have to move out whilst any repairs are carried out to your apartment.

Finally, you and your neighbours should investigate the Right To Manage (RTM) route in order to achieve more control over your service charge costs.

[Preston]

As a policyholder you are also entitled to ask the broker to disclose the commission they receive and what part of their commission element they return to the Lessor.


Thanks for the information. Do you have a statutory reference for this?

[andydd]

Thanks for the information. Do you have a statutory reference for this?

I'd be interested in this too. I have a feeling if I just write to the broker asking for this info. it will just be ignored.

[Brevent]

The definition of a policyholder (e.g. someone who stands to benefit from a policy) and their entitlements are in the FSA Conduct of Business handbook which I will try and look up this week for a complete reference, however......as for disclosure, simply write to the Compliance Officer at the Broker and advise them that in line with the FSA Treating the Customer Fairly regime and that as a policyholder of policy number XXXXXXX, you are requesting the information you require. For copy documents they may charge you a small fee.

Unlike a landlord or managing agents, we are regulated and have to deal with your request in a prescribed way under the FSA regime if you describe your request as a complaint. Keep a copy of your letter (better still send it as registered post).

They should acknowledge your letter and advise you how they are dealing with your enquiry. Keep all copies of this. Commission disclosure to customers of commercial polices if requested is a big FSA hobbyhorse at the moment (and remember most block of flats policies are commercial policies).

If the broker fails to respond (which can be very bad for them and involve the FSA looking more carefully at how they conduct business) simply write to the compliance director of the insurer involved, then things will move for you.

[Preston]

The definition of a policyholder (e.g. someone who stands to benefit from a policy) and their entitlements are in the FSA Conduct of Business handbook which I will try and look up this week for a complete reference, however......as for disclosure, simply write to the Compliance Officer at the Broker and advise them that in line with the FSA Treating the Customer Fairly regime and that as a policyholder of policy number XXXXXXX, you are requesting the information you require. For copy documents they may charge you a small fee.

Unlike a landlord or managing agents, we are regulated and have to deal with your request in a prescribed way under the FSA regime if you describe your request as a complaint. Keep a copy of your letter (better still send it as registered post).

They should acknowledge your letter and advise you how they are dealing with your enquiry. Keep all copies of this. Commission disclosure to customers of commercial polices if requested is a big FSA hobbyhorse at the moment (and remember most block of flats policies are commercial policies).

If the broker fails to respond (which can be very bad for them and involve the FSA looking more carefully at how they conduct business) simply write to the compliance director of the insurer involved, then things will move for you.

Thanks for this Brevent, very useful advice.

Preston