Joseph Darryl Douglas v RMB 102 Limited & Anor

A service charge for insurance remains subject to the statutory reasonableness provisions where a tenant-controlled management company procures the insurance and receives the charge. The management company may be a “landlord” for the purposes of the Landlord and Tenant Act 1985 because it has a right to enforce payment. A leaseholder’s application under section 27A is not incapable of success merely because the charge is payable to the management company rather than the freeholder, and the freeholder may properly be joined where the determination may affect the leaseholder’s contractual liabilities. However, the statutory test does not require the nominated insurer to offer the cheapest premium available.

Leaseholders of two blocks applied under section 27A of the Landlord and Tenant Act 1985 for a determination of the reasonableness and payability of sharply increased buildings-insurance charges. The leases were tripartite: the leaseholders covenanted to pay service charges to a management company, which was required to procure insurance from an insurer nominated by the freeholder.

The First-tier Tribunal struck out the application, relying on Berrycroft Management Co Ltd v Sinclair Gardens Investments (Kensington) Ltd [1997] 1 EGLR 47. The central issue was whether the application had no reasonable prospect of success because the insurance costs were incurred by the management company rather than by or on behalf of the freeholder.

1. Appeal allowed and matter remitted. The FTT erred in striking out the application. The leaseholders’ comparison between the increase in their premiums and increases in comparable blocks called for an explanation.
2. The leaseholders’ payments to the management company were service charges within section 18 of the Landlord and Tenant Act 1985. The management company was a “landlord” under section 30 because it had a right to enforce payment. The insurance costs therefore constituted relevant costs under section 18(2), even though they were not incurred on behalf of the freeholder: they were incurred on behalf of the management company. The contrary observations in Berrycroft Management Co Ltd v Sinclair Gardens Investments (Kensington) Ltd [1997] 1 EGLR 47 were obiter and did not bind the FTT, as explained in Cinnamon Ltd v Morgan [2001] EWCA Civ 1616.
3. Section 27A was deliberately drafted in broad terms. It did not restrict applications to the person legally obliged to pay or entitled to collect the charge. Oakfern v Ruddy [2006] EWCA Civ 1389 and Gateway Holdings (NWB) Ltd v McKenzie [2018] UKUT 371 (LC) supported that conclusion.
4. The freeholder was an appropriate respondent. A determination could affect the leaseholders’ covenant to pay the management company, their exposure to forfeiture, and possible future management proceedings. The management company would ordinarily also be joined or added as a claimant, but the question of its participation was left to the FTT.
5. The prospects of proving unreasonableness remained open. The freeholder was not required to obtain the cheapest available premium, but the charge could be challenged if the transaction was outside the ordinary course of business or otherwise not reasonably incurred. Bandar Property Holdings Ltd v J S Darwen (Successors) Ltd [1968] 2 All ER 305 and Havenridge Ltd v Boston Dyers Ltd [1994] 2 EGLR 73 were relevant guidance.
6. Permission to appeal was refused on the remaining grounds. No party other than the freeholder and management company needed to be joined.

• First-tier Tribunal (Property Chamber): Application struck out under rule 9(2)(e) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 on the basis that it had no reasonable prospect of success.
• Upper Tribunal (Lands Chamber): Appeal allowed. The FTT’s decision was set aside and the application remitted for determination. Permission was refused on the remaining grounds.