Shop or drop

The Upper Tribunal has ruled that a landlord’s failure to shop around and obtain a competitive insurance quote meant that the premium was not “reasonably incurred” and therefore not payable by the tenants.

In the case of Cos Services Ltd v Nicholson & Willans, a landlord was responsible for the insurance of a block of flats. The tenants were obliged to contribute to the insurance premium via the service charge.

The premium incurred by the landlord and which it sought to recover from the tenants was in excess of £12,000 per year. Meanwhile, the tenants had quietly obtained their own quotations indicating that similar insurance cover was available for 75% less than the premium charged by the landlord. 

Under the Landlord & Tenant Act 1985, insurance charges may only be recovered to the extent that they are reasonably incurred by the landlord. The tenants therefore challenged the landlord’s charge.

The Tribunal ruled that, in light of other available insurance options, the landlord had failed to demonstrate that the cost of the insurance was “reasonably incurred” and that the tenants were not therefore liable to pay the premium charged by the landlord. The Tribunal made it clear that when assessing reasonableness it will look at the landlord’s explanation as to why it has selected a particular policy and what steps it has taken to assess the current market and the availability of other genuinely comparable cheaper options.

This case puts increasing pressure on landlords to shop around to ensure that they test the market and are able to demonstrate, if faced with a challenge by tenants, that they have acted reasonably, even if the policy ultimately obtained is not the cheapest option. 

This article features in the Hughes Paddison Winter 2017 Property Disputes Update. You can view a summary of the full content of the newsletter and download a copy here.