Liam Philip Spender & Ors v Fit Nominee Limited & Anor
[2024] UKUT 175 (LC)
Octagon Overseas Limited & Anor v Sandra Cantlay & Ors
26 March 2024
[2024] UKUT 72 (LC)
Upper Tribunal
Leaseholders challenged high service charges for building insurance, arguing that commissions the landlord received should be deducted. The court agreed the landlord could charge for the insurance, but not for an excessive amount of commission paid to their agents. The commission was reduced significantly, making the charges fairer for the leaseholders.
Key Facts
- •Appeal concerning insurance commissions and fees received by landlords of the Canary Riverside Estate.
- •First-tier Tribunal (FTT) ruled leaseholders not liable for service charges totaling £1,517,372 related to insurance commissions received by the landlords' agents.
- •The appeal focuses on leaseholders' contractual liability to contribute to insurance costs when the landlord receives commission and the reasonableness of the charges.
- •The Estate was insured under a block policy covering 40 properties, managed through agents WMS and broker Reich.
- •Leaseholders argued commissions were discounts that should be passed on, while landlords claimed they were payments for services rendered by WMS.
- •FTT found that the broker's commission was reasonable but that the commission paid to WMS was not recoverable by the leaseholders.
Legal Principles
Interpretation of lease agreements to determine leaseholders' liability for insurance costs, specifically when landlords receive commissions.
Landlord and Tenant Act 1985, sections 18(2) and 19(1); Landlord and Tenant Act 1987, section 24; Headlease clauses 6.1, 6.3.1, 6.3.2, 4.1(b), and clause 1 (definition of Insurance Rent); Underlease clause 23.2 and 24.3.8.
Reasonableness of service charges under section 27A, Landlord and Tenant Act 1985.
Landlord and Tenant Act 1985, section 27A.
The meaning of "in respect of" in contractual interpretation.
Trustees Executors and Agency Co Ltd v Reilly [1941] VLR 110.
Permissibility of short-circuiting payments in contractual arrangements.
Brown v Innovator One plc [2012] EWHC 1321.
Leaseholders' vulnerability in insurance arrangements and potential for exploitation.
Williams v London Borough of Southwark (2001) 33 HLR 22.
Outcomes
Appeal allowed.
The FTT wrongly excluded the commission paid to WMS from the Insurance Rent. The court found that the gross premium was the relevant cost, and the commission payments, while not at arm’s length, were still recoverable under the lease, subject to reasonableness.
Commission payable to WMS reduced from £1,517,372 to £536,182 (plus Insurance Premium Tax, totaling £579,039).
The court considered the evidence regarding WMS's services, the reasonableness of Reich's commission (taken as a benchmark), and Mr. Coates' previous proposal for a commission structure. Given insufficient evidence to precisely determine WMS's reasonable commission, the court equated it to Reich's allowable commission, resulting in a significant reduction.
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