Nonyelu Okoye v Gray’s Inn Capital Limited

Under section 19 of the Landlord and Tenant Act 1985, a tenant challenging a service charge must first establish a prima facie case that the relevant cost was not reasonably incurred. The tenant must identify a reason or produce evidence indicating unreasonableness; the landlord need not initially prove reasonableness.

Where the challenge concerns insurance covering risks beyond those specified in the lease, the tenant must show that the building could have been insured without the additional cover and that doing so would have been cheaper. A single additional item of cover does not itself establish unreasonable charging.

Mr Nonyelu Okoye appealed against a decision of the First-tier Tribunal (Property Chamber) concerning the reasonableness of service charges for three leasehold flats. The appeal was confined to insurance premiums charged between 2014 and 2023.

The leases required the landlord to insure against specified risks. The appellant argued that the landlord’s insurance extended beyond those risks and that this itself established a prima facie case that the premiums were unreasonable. The Upper Tribunal considered the actual cover shown by the policy documents and the effect of the evidential burden under sections 19 and 27 A of the Landlord and Tenant Act 1985.

1. Appeal dismissed. The First-tier Tribunal had been entitled to find that the property was insured for the full reinstatement value against the insured risks required by the leases.
2. Section 19 of the Landlord and Tenant Act 1985 limits service charges to relevant costs reasonably incurred. A tenant challenging a charge must first make a prima facie case by producing a reason or evidence indicating that the cost was unreasonable. The tenant cannot merely require the landlord to prove reasonableness.
3. A prima facie case may arise from a cheaper quotation for the same service or from circumstances making the cost appear unreasonable. However, the mere existence of wider wording in a generic insurance policy document does not establish that the landlord actually insured against, or charged for, all those risks.
4. The evidence showed that the landlord’s actual policy did not insure against business interruption or book debts. Loss of rent was insured for £0. Terrorism and all other damage were consistent with the lease requirements. Property owner’s liability, insured for £5 million, was the only item not obviously within the specified insured risks.
5. That additional item did not establish a prima facie case of overcharging. The appellant would have needed to show both that the building could have been insured without that cover and that the premium would thereby have been cheaper.
6. The summary documents had been before the First-tier Tribunal and explained its acceptance of the landlord’s evidence and its rejection of the over-insurance argument. The appeal therefore failed.

• Upper Tribunal (Lands Chamber): appeal dismissed.
• First-tier Tribunal (Property Chamber): determined that the challenged service charges, including the insurance charges, had been reasonably incurred.