Various residential leasehold properties in Kensington and Chelsea: LON/00AW/LSC/2018/0465 LON/00AW/LSC/2018/0465
DECISION
[94]In reaching our decision we bear in mind the strong views expressed by the leaseholders in their written submissions and at the hearing in January. We were impressed by the professionalism demonstrated by all of those who took so much care and time to prepare their arguments and are grateful for the assistance that this provided to the Tribunal.[95]We are also conscious that there has been a great deal of discontent with the way in which insurance provision for leasehold properties has been managed over a number of years. Having said this, the events of June 2017 when the Grenfell Tower fire occurred and the decisions in respect of insurance made during the Autumn and Winter of 2017-218 must be considered in context.[96]The single question for the Tribunal to decide in this case is whether the insurance premium for the 2018-19 Leasehold Policy is payable. We are satisfied that the premium is payable in accordance with the terms of the leases and we are satisfied that it was reasonably incurred.[97]However, we have insufficient information to decide whether the way in which the calculation of premiums for individual leaseholders has been carried out has in every case been accurate or that sufficient credit to reflect the decision not to pass on the 40.41% of the increased costs has been properly implemented. We recommend that if any individual leaseholder has concerns about the calculation of their premium, the Council should provide them with a detailed written explanation and, if appropriate, a refund.REASONS
[98]It is a basic principle of leasehold law and practice, that it is a matter for a landlord to decide the manner in which obligations under a lease are to be discharged. As observed in Cos Services Limited v Nicholson & Willans [2017] it will not be necessary for the landlord to show that the insurance premium sought to be recovered from the tenant is the lowest that can be obtained in the market. However, the premium must be reasonably incurred and for that reason we have reviewed the main submissions made by the leaseholders in some detail. Having done so, overall, we are satisfied that the Council’s decisions were rational and reasonable.[99]We start with the arguments about whether it was reasonable for the Council to secure insurance under a blanket policy. We are satisfied that this is industry practice where a landlord has a large property portfolio and accept the evidence given on behalf of the Council that this approach is adopted by the vast majority of local authority landlords and housing associations but also by landlords in the private sector.[100]We acknowledge the leaseholders’ concern that this approach means that there is a distribution of risk across all leasehold properties and that this might mean that there is an unevenness in premium allocation. However, we do not consider this to be unreasonable. For the reasons given by the Council, there are overarching benefits in dealing with its leasehold stock in this way. These include savings in administrative cost and claims handling but more importantly it avoids unacceptable differences in premium allocation and provides security and certainty to all leaseholders whether they occupy a high-risk property or not. We do not regard this as being high-handed or reflecting a paternalistic or “socialist” approach. It makes good commercial sense and fulfils the landlord’s obligation under the leases. There is a difference in opinion between the leaseholders about the merits of a blanket policy. This is not surprising but we consider that it illustrates that there is more than one way in which insurance could have been secured and that in those circumstances, it is the landlord who is entitled to decide which of two reasonable routes it wishes to take. By its very nature, insurance is concerned with the spreading of risk and we are satisfied that the Council acted reasonably in entering into a blanket policy which overall enhances the spread of risk.[101]Turning now to the Council’s decision to change to a bedroom-rated policy for 2018/19. Here it is important to understand that the context of this decision was not simply the need to deal with the ongoing consequences of the Grenfell Tower fire, but also the historic anomalies in the allocation of premiums between similar properties. We are satisfied that this was a problem that had to be addressed. The differences between the valuation of flats seemed to us to have been made worse by the simple application of RPI as a way of uprating historic valuations. Inevitably, this would mean that the gap in the valuation of similar properties would become wider, year on year.[102]The ability to change to bedroom rating had been included in the insurance contract and therefore had been the subject of consultation. There is no question that the change was welcomed by numerous leaseholders. The Council considered whether it would be possible to carry out a revaluation in time to procure the 2018/19 insurance and decided realistically that it was not. They were therefore faced with the choice either to proceed on the basis of unrealistic and unfair valuations for one more year or to adapt a broad-brush approach. Arguably, either course would have been reasonable but the Tribunal is satisfied that the better approach was to change to a bedroom-rated policy for that year.[103]As indicated in our decision however, we cannot be satisfied that the relatively complex exercise of recalculating premiums to reflect the new valuation basis has been correct in every case. Mathematical errors may also have been made following the Council’s decision in June 2018 not to recharge that part of the insurance costs said to have been attributable to the Grenfell Tower fire.[104]The relationship between the Leasehold Policy and the General Policy did initially cause the Tribunal some concern. Whilst we accept Mr Bhose’s submission that we do not have evidence that demonstrates a systematic failure on the part of the council to maintain their residential building stock, we do have anecdotal evidence that such failures do occur. The fact that there is a subrogation clause in the two policies is of no comfort to the leaseholders who are obliged to make claims in cases of water escape. However, we appreciate that there is difficulty in managing the relationship between two policies which subsist in buildings where there are both leaseholders and tenants. We accept that this is the case in most or all of the Council’s properties with residential leases.[105]We consider that the Council is correct to maintain a policy for leaseholders which is separate from the General Policy and that therefore they must find a way of managing claims which arise between co-occupiers. As Mr Bhose submitted, the allocation of liability for the cause of water escapes is notoriously difficult and is not a matter for claims handling. If there is a clear case of failure to maintain by the Council, then this is a breach of covenant in respect of which the lessee could make a claim.[106]We were satisfied that the Council are taking appropriate steps to monitor claims and to review the question of whether better maintenance is required. We express the view that this should be a priority going forward. Additionally, we would encourage the Council to ensure that provision for claims handling with the new providers is efficient and robust.[107]Whilst we acknowledge that the claims history relating to the escape of water in the Borough was specifically cited as one of the reasons that the premium increased, we do not consider that this renders the decision to enter into the insurance contact or the level of the premium to have been unreasonable. The risk was clearly there and leaseholders needed the protection of an effective policy.[108]It is convenient here to also consider whether the level of excess at £100 was too low. This is another instance where there is no unanimity in leaseholder views. There is no question but that a lower excess will lead to a higher premium. It is also likely that a higher excess might have the effect of discouraging claims which would in turn improve the claims history for an insurer’s consideration. Fundamentally, however, this is a management question for the Council. Mr Bhose said that overall the feedback from lessees had been in favour of keeping the excess level low. We consider that the Council’s decision was proportionate and reasonable.[109]Turning now to the increase in the loss of rent and alternative accommodation costs allowance. The value of both was significantly increased and led to a much higher premium. We do not consider those values to be absurd or unrealistic. We accept Ms Reffell’s evidence that when insurers fix a premium, those figures are regarded as a maximum that will be reached rather than a benchmark. Furthermore, we are satisfied that the view of the insurance market following the Grenfell Tower fire was that the costs of alternative accommodation or loss of rent had previously been underestimated.[110]We appreciate that this is valuation question but note that the levels decided upon had already been adopted by the London Borough of Westminster. So far as the submission that these are ex-council properties, we do not accept that this would have had a significant dampening impact. Also, if alternative accommodation were to be required within the region, it may well have to be found in the private sector and possibly within a high value area.[111]So far as the inclusion of terrorist cover is concerned, under the lease it is a matter for the landlord to decide which risks to insure against and terrorism cover is now often routinely included.[112]In the Cos Services case, HH Judge Stuart Bridge said that tenants may, as happened in that case, place quotations before the Tribunal, but in doing so they must ensure that the policies are genuinely comparable (that they “compare like with like”). Here, a number of leaseholders did take steps to obtain quotations from some of the most reputable insurers. However, the Tribunal was not satisfied that these were “like for like”. In particular, the excess figures for water escape were much higher and it seems that insufficient consideration was given to the circumstances that all of the buildings concerned are occupied by a mixture of leaseholders and tenants. The Tribunal appreciate that trying to obtain comparable quotations is an extremely difficult task but, in this case, we are not assisted by the quotations that were given.[113]Finally, we turn to Mr Bowker’s submission that we cannot be satisfied that the premium is reasonable unless we have evidence that the percentage of the premium that was said to have been allocated to the effects of the Grenfell Tower fire was accurate. We reject this submission. There is no reason at all to doubt that figure. It was provided by Ocaso on the basis that the whole of the premium was to be recovered from the leaseholders and indeed that had been the Council’s original intention. The figures were provided in good faith in open correspondence. In our view the Council were correct to rely on that advice. We also endorse their decision not to pass on that part of the costs to the leaseholders.[114]Accordingly, we find that the premium for 2018/19 was reasonably incurred. We consider that the Council were correct to rely on the advice of JLT and in particular we found Ms Reffell to be an expert and reliable witness. We find that the process followed by the Council in placing the insurance was competent and rational. Siobhan McGrath 22nd June 2020