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The building insurance component of my service charge has increased by 60% and my Housing Association landlord will not let me see the policy. Is this legal?

Reader’s E-mail:

XXXXXX have suddenly increased our Building Insurance (Ground Floor 2 Bedroom Flat, 3 Storey Building) by 61% for 2016 – I am reading from almost all other sources that Premiums have decreased by 31% 2010 to 2015.

XXXXX have also refused to let me View or send me a detailed copy of their Insurance Policy stating that they insure their 40,000 strong property empire en bloc and then divvy up an annual charge to each resident without ever showing residents any documentation whatsoever.

My Lease states that “/…….and shall produce to the Lessee on demand the policies of such insurance and the receipt for every such payment” but XXXXXX continuously ignores this.

Please Advise if XXXXX’s conduct is lawful.

Reply from Service Charge Dispute Guide

Four distinct issues we think it be useful for you to consider.

A) Right to View Document

1. You have a right under section 22 of the Landlord and Tenant Act 1985 to view all documentation related to a service charge demand within 6 months of receiving that demand.

2. We cannot see how the fact that the insurance policy relates to all the properties in your landlord’s housing stock makes any difference. Almost every type of contract or invoice related to a service charge will relate to multiple properties. Section 22 would be meaningless if it only entitled a leaseholder to view documentation which related specifically to their individual property.

3. We advise that you make a formal request in writing to view the insurance policy (and take a copy) under section 22, and complain if this is not allowed within the statutory period of 1 month. Once you have exhausted the complaints procedure you would have the option of complaining to the Housing Ombudsman if access is still not allowed. The Housing Ombudsman has the power to impose sanctions and registered providers of social housing take investigations by the Housing Ombudsman very seriously.

B) Reasonableness of the Insurance Premium

1. An insurance premium is defined under section 18 of the Landlord and Tenant Act 1985 as a service charge, and therefore subject to section 19(1)(a) of the Landlord and Tenant Act 1985, which states that a service charge is any payable to the extent that it is ‘reasonably incurred’.

2. The term ‘reasonably incurred’ is not defined by the legislation, but has been defined by the upper courts and tribunals as involving two tests:

i. Whether the decision to incur the costs was a reasonable one.

ii. Whether the service charge is reasonable in amount.

3. This broad definition was first explicitly expressed in the case of Forcelux v Sweetman [2001] 2 EGLR 173, itself a case concerned with the reasonableness of an insurance premium.

4. For a recent discussion of the leading legal authorities we suggest that you take the time to read the decision in the case of Avon Estates (London) Ltd v Sinclair Gardens Investments (Kensington) Ltd [2013] UKUT 0264 (LC).

5. You will note that whilst it is not a legal requirement for a landlord to necessarily choose the cheapest possible insurance policy, it is a requirement that the market is test properly to establish a fair price, or alternatively that the insurance policy selected is within a normal range for the insurance market.

6. The anecdotal evidence we are aware of is that the quotations between offered to registered social landlords for bulk policies has increased over the last few years. Several possible reasons for that and something you should explore is whether the policy your landlord is currently using is the same or different to the policy they had previously.

7. There has been a lot of debate, and litigation, recently over the inclusion of additional items of cover, such as insurance against terrorism. An interesting case to read on this point is Qdime v Various Leaseholders at Bath Building (Swindon) and others [2014] UKUT 261 (LC).

8. There may also be questions to be explored about whether the charge you are being asked to pay includes a premium for claims handling or other administrative costs which is the subject of the Avon Estates case quoted above.

C) Apportionment

1. Your lease may state something about how costs should be apportioned between the dwellings in your building. If so, then there is a significant question to be explored as to whether the way in which the overall cost of a bulk insurance policy for the whole of your landlord’s housing stock has been apportioned between residents meets the requirements of your lease.

2. There are a number of methodologies adopted by different social housing providers for doing this. Finding out the exact method your landlord is using is likely to be an illuminating line of enquiry.

3. To the best of our knowledge this particular legal issue has not been properly tested by the upper courts and tribunals.

i. The closest example of a similar issue being considered, of which we are aware, is in the case of Norwich City Council v Redford [2015] UKUT 0030 (LC).

ii. This case was about Norwich City Council taking out a city wide maintenance contract and asking each of their leaseholder to pay an equal share without regard to the actual expenditure incurred by each estate within their housing stock.

iii. There is possibly an analogy to the apportionment of a bulk insurance policy in that an individual leaseholder may have grounds to dispute their share of the total cost of the insurance policy on the basis that the share of the cost they are being asked to pay does not take account of the specific building they are in.

iv. If your landlord has a large housing stock then logically there must be some difference in the cost of insuring the different building within that housing stock.

v. Your question might be whether the apportionment method your landlord has adopted takes proper account of that, or indeed whether (as in the Norwich City Council v Redford [2015] UKUT 0030 (LC) case) your lease entitles your landlord to charge for the cost of a policy covering all the housing stock in the first place.

4. Because of the absence of definitive case law we are not suggesting what the answer to these questions might be, but merely suggesting that there are important questions to be asked in this respect.

D) Section 20

1. Have you been consulted about the letting of a contract to provide insurance cover?

2. Registered social landlords tend to procure their insurance policies for more than one year at a time.

3. If yours has done the same then they have entered into a ‘qualifying long term agreement’ and the requirement to consult under section 20 of the Landlord and Tenant Act 1985 will have arisen.

4. If this is the case, and your landlord has not consulted, then the amount they can charge you per year is capped at £100.

Click on the link to read more Reader’s Questions and Answers on Rights to Information

Click on the link to read more Reader’s Questions and Answers on Apportionment Issues