09 July 2014 #Real Estate
The recent Judgment in the Upper Tribunal (Lands Chamber) case of Qdime Ltd v Various Leaseholders at Bath Building (Swindon) and others  UKUT 261 (LC) is a decision that will be of interest to landlords and tenants.
The Upper Tribunal had to consider whether a residential lease that obliged a landlord to insure against the “usual comprehensive risks in accordance with the Council of Mortgage Lenders (CML) recommendations and such other risks as the Landlord may in its reasonable discretion think fit”, required a landlord to insure against terrorism.
The CML Handbook outlines the various risks against which a property may be insured. The usual risks under the Handbook include explosion but terrorism is not explicitly listed.
The dispute concerned a block of 13 flats in Swindon. The leases for the flats obliged the landlord to insure against the usual comprehensive risks in line with the CML recommendations. Insurance costs were recoverable from the tenants through the service charge.
The tenants of 11 of the 13 flats applied to the Leasehold Valuation Tribunal (LVT), challenging items in the service charge expenditure that included terrorism insurance, which they argued was unnecessary and unreasonable.
The LVT agreed that terrorism insurance by the landlord should not be recoverable as part of the service charge. The Upper Tribunal overturned the LVT’s decision that the terrorism insurance was not recoverable as a service charge.
The Upper Tribunal decided (amongst other things) that the leases expressly obliged the landlord to insure the building according to CML recommendations which included in its list of risks “explosion” as a common risk. The Upper Tribunal confirmed that “the ordinary meaning of the word explosion includes explosions caused by terrorism”.
Following this decision, landlords are advised to check the insurance obligations in their leases to ensure that they have full insurances in place. Landlords should note that an obligation to insure against explosion may require them to put in place terrorism insurance. Tenants should also note that a well-drafted lease will usually oblige them to pay for it.