Zambra Investments Ltd v Tracey Ellis [2015] UKUT 0031 (LC)

To my ear, a name beginning with the last letter of the alphabet speaks of the exotic.

In my life before I became a barrister, I worked in travel. Zanzibar represented for me all that was mysterious and exciting about adventure, but please do not rush there just now unless you enjoy the rain: it monsoons between March and May.

I have never been to Zanzibar, but I did have the good fortune to go to Zimbabwe in 1996. That however is another story, populated by hippos, elephants and light aircraft.

There is a row of properties on Old Church Road in Chingford, E4. Zambra was the freehold owner of twelve maisonettes in that row. Seven were let on long leases.

Miss Ellis was one of the long lessees. Her lease required her to make a contribution towards the buildings insurance premium incurred by Zambra.

Zambra did not insure all twelve of its properties under one insurance policy. It insured the seven maisonettes on long leases under one, and the remaining five maisonettes under a different one through its mortgagee. Miss Ellis’s contribution was one seventh of the cost of the seven maisonette policy:

• For 2013-14, when the premium was £4,557.99, she paid £651.14, and
• For 2014-15, when the premium was £4,881.03, she paid £697.29.

The premium factored in £1,029,262 as the cost of reinstating the seven maisonettes.

“The fact that the insurance policy covering the Maisonette only relates to seven of the twelve maisonettes is key to the issue raised in this appeal”, said HHJ Alice Robinson, who determined the appeal on written representations.

Miss Ellis applied to the FTT for a determination of the amount that she should be paying in connection with her insurance.

Reading between the lines, it would appear that at the outset, Miss Ellis had the impression that one insurance policy covered all twelve maisonettes, and wanted an explanation as to why her insurance premium was only divided seven ways rather than twelve.

She obtained evidence supporting her contention that the insurance cost was too high. That evidence included alternative insurance quotes, including one from AXA Insurance UK plc, which was the insurer used by Zambra.

So far, so good.

Unfortunately however, in obtaining her evidence, Miss Ellis had used £1,000,000 as the reinstatement cost of the twelve maisonettes. She had effectively therefore used the reinstatement cost of seven maisonettes as the cost of reinstating twelve.

Zambra pointed this out to the FTT, and disclosed the existence of the two insurance policies and the reinstatement valuation of £1,029,262 for the policy covering the seven maisonettes.

The FTT disregarded all of Miss Ellis’s insurance quotes save for the AXA quote, because they were not like-for-like.

Matters then began to go pear-shaped.

Basing its calculations on Miss Ellis’s AXA quote, the FTT decided that the landlord should obtain insurance for “the whole block” for £3,071.41.

It then divided that figure by twelve, being the total number of flats owned by Zambra, and determined that Miss Ellis’s contribution towards insurance should be £256.03.

Zambra appealed on the basis that the FTT had not had regard to whether Miss Ellis’s AXA quotation was actually comparable to the insurance policy that actually covered her maisonette.

In anticipation of the appeal, Miss Ellis provided an updated reinstatement cost estimate for the twelve maisonettes.

It totalled £1,428,000, nearly £400,000 more than the allowance given in the policy towards which Miss Ellis contributed.

HHJ Robinson’s decision and reasoning is summed up in just one paragraph:

“In my judgment it is clear that the F-tT has failed to have regard to whether [Miss Ellis’s] AXA quotation was comparable to the insurance obtained by [Zambra] having regard to the fact that the sums insured were virtually identical but [Zambra’s] insurance covered only seven maisonettes whereas [Miss Ellis’s] AXA quotation covered twelve maisonettes. The re-building cost of twelve maisonettes could be expected to be significantly higher than that of seven as demonstrated by the re-instatement cost assessment obtained by the respondent in this appeal which is nearly half as much again”.

That really is the start and finish of the decision. The FTT’s error was in relying on that reinstatement value as the value for reinstating twelve, rather than seven, maisonettes. It thereby:

• Failed to have regard to Zambra’s cost valuation – which was for the same amount, but for just seven maisonettes – and was a relevant consideration;
• Failed to consider what the reinstatement value for twelve maisonettes would be, or, if it did consider those points,
• Failed to give reasons for rejecting Zambra’s evidence.

The appeal was therefore allowed, and the case sent back to the FTT for a re-hearing.

Something seems to have gone rather pear-shaped in the FTT on this one. That is really all I can find to say here.

It struck me that I might be more usefully direct the observations section of this post to an overview of the Schedule to the Landlord and Tenant Act 1985, since it relates to insurance and bestows some real powers on lessees.

Section 30A gives effect the Schedule to the Act.

The Schedule is entirely dedicated to insurance and lessees’ rights in relation to it. The text of the Schedule is in italics: my comments on it are in plain type.

Paragraph 1 contains three definitions:

• Landlord
• Relevant policy
• Tenant

“Landlord”, in relation to a tenant by whom a service charge is payable which includes an amount payable directly or indirectly for insurance, includes any person who has a right to enforce payment of that service charge.

This takes care of tri-partite leases, where the management function is carried out by a third party such as a Residents’ Management Company.

“Relevant policy”, in relation to a dwelling, means any policy of insurance under which the dwelling is insured (being, in the case of a flat, a policy covering the building containing it).

Note the use of the present tense: it is the policy under which the dwelling/building is currently insured.

“Tenant” includes a statutory tenant.

Where the lessee holds a lease exceeding 21 years, this will not be relevant. A statutory tenant is a tenant occupying under the terms of the Rent Acts.

Paragraph 2 is the first of the operative provisions of the Schedule:

(1) Where a service charge is payable by the tenant of a dwelling which consists of or includes an amount payable directly or indirectly for insurance, the tenant may by notice in writing require the landlord to supply him with a written summary of the insurance for the time being effected in relation to the dwelling.

(2) If the tenant is represented by a recognised tenants’ association and he consents, the notice may be served by the secretary of the association instead of by the tenant and may then be for the supply of the summary to the secretary.

(3) A notice under this paragraph is duly served on the landlord if it is served on—

(a) An agent of the landlord named as such in the rent book or similar document, or

(b) The person who receives the rent on behalf of the landlord;

and a person on whom such a notice is so served shall forward it as soon as may be to the landlord.

(4) The landlord shall, within the period of twenty-one days beginning with the day on which he receives the notice, comply with it by supplying to the tenant or the secretary of the recognised tenants’ association (as the case may require) such a summary as is mentioned in sub-paragraph (1), which shall include—

(a)  the insured amount or amounts under any relevant policy, and (b) the name of the insurer under any such policy, and

(b)  the risks in respect of which the dwelling or (as the case may be) the building containing it is insured under any such policy.

(5) In sub-paragraph (4)(a) “the insured amount or amounts”, in relation to a relevant policy, means—

(a) In the case of a dwelling other than a flat, the amount for which the dwelling is insured under the policy; and


(b) In the case of a flat, the amount for which the building containing it is insured under the policy and, if specified in the policy, the amount for which the flat is insured under it.

(6) The landlord shall be taken to have complied with the notice if, within the period mentioned in sub-paragraph (4), he instead supplies to the tenant or the secretary (as the case may require) a copy of every relevant policy.

(7) In a case where two or more buildings are insured under any relevant policy, the summary or copy supplied under sub-paragraph (4) or (6) so far as relating to that policy need only be of such parts of the policy as relate—

(a) To the dwelling, and


(b) If the dwelling is a flat, to the building containing it.

Which policy?

It is only the current policy which can be subject to a request under this paragraph.

The notice and its service

The notice must be in writing – therefore a telephone call will be insufficient.

Subparagraph 3 allows the notice to be served on the landlord’s managing agent, but to my mind, the starting point for service should be the landlord if at all possible.

The fallback position of service on the managing agent means however that a landlord cannot hide under a rock and hope that s/he will not be found by the lessee – unless of course s/he is also using the rock to hide from his/her managing agent.

I hesitate to endorse service by email: section 48 of the Landlord and Tenant Act 1987 obliges the landlord to give a lessee an address in England and Wales at which notices “may” be served. It strikes me that the landlord’s section 48 address is the address that should be used here, unless the landlord expressly agrees to service of the notice by email.

The landlord must comply with the request within twenty one days of receipt of the notice – or face potential prosecution. More on that below.

Paragraph 3 allows for lessees to read the detail of the policy, whether by going to the landlord’s premises to read and copy it, or by having the landlord send a copy/arrange for a copy of the policy to be available for collection:

(1) Where a service charge is payable by the tenant of a dwelling which consists of or includes an amount payable directly or indirectly for insurance, the tenant may by notice in writing require the landlord—

(a) To afford him reasonable facilities for inspecting any relevant policy or associated documents and for taking copies of or extracts from them, or


(b) To take copies of or extracts from any such policy or documents and either send them to him or afford him reasonable facilities for collecting them (as he specifies).

(2) If the tenant is represented by a recognised tenants’ association and he consents, the notice may be served by the secretary of the association instead of by the tenant (and in that case any requirement imposed by it is to afford reasonable facilities, or to send copies or extracts, to the secretary).

(3) A notice under this paragraph is duly served on the landlord if it is served on—

(a) An agent of the landlord named as such in the rent book or similar document, or

(b) The person who receives the rent on behalf of the landlord;

and a person on whom such a notice is so served shall forward it as soon as may be to the landlord.

(4) The landlord shall comply with a requirement imposed by a notice under this paragraph within the period of twenty-one days beginning with the day on which he receives the notice.

(5) To the extent that a notice under this paragraph requires the landlord to afford facilities for inspecting documents—

(a) He shall do so free of charge, but


(b) He may treat as part of his costs of management any costs incurred by him in doing so.

(6) The landlord may make a reasonable charge for doing anything else in compliance with a requirement imposed by a notice under this paragraph.

(7) In this paragraph—

“relevant policy” includes a policy of insurance under which the dwelling was insured for the period of insurance immediately preceding that current when the notice is served (being, in the case of a flat, a policy covering the building containing it), and

“associated documents” means accounts, receipts or other documents which provide evidence of payment of any premiums due under a relevant policy in respect of the period of insurance which is current when the notice is served or the period of insurance immediately preceding that period.

Service of the notice

The same points apply here in respect of service as apply in connection with the service of a notice asking for a summary of the policy.

Definitions

“Relevant policy” has a particular, broader meaning here than in paragraph 1: it includes last year’s policy as well as the policy for the current year.

“Associated documents” has a broad meaning too, but in essence it covers documents which show that an insurance premium has been paid.

Charges

Whilst a landlord is not permitted to charge a lessee directly for the provision of “reasonable facilities”, s/he is permitted to include the cost – if any – in his/her management fee.

In other words, if the lease allows the landlord to recover the costs of management, the cost of furnishing the lessee with “reasonable facilities” may subsequently find its way into the service charge.

The landlord is however entitled to recover the cost of “doing anything else in compliance with a requirement imposed by a notice under this paragraph”. A charge for making copies of the inspected documents could therefore be chargeable directly to the lessee.

Time limits

The landlord must comply with a request to inspect the insurance policy within 21 days beginning with the day on which s/he receives the notice.

Paragraph 4 broadly imposes the same obligations on a superior landlord, if the liability to insure is not borne by the intermediate landlord:

(1) If a notice is served under paragraph 2 in a case where a superior landlord has effected, in whole or in part, the insurance of the dwelling in question and the landlord on whom the notice is served is not in possession of the relevant information—

(a) He shall in turn by notice in writing require the person who is his landlord to give him the relevant information (and so on if that person is not himself the superior landlord),

(b) The superior landlord shall comply with the notice within a reasonable time, and

(c) The immediate landlord shall then comply with the tenant’s or secretary’s notice in the manner provided by sub-paragraphs (4) to (7) of paragraph 2 within the time allowed by that paragraph or such further time, if any, as is reasonable in the circumstances.

(2) If, in a case where a superior landlord has effected, in whole or in part, the insurance of the dwelling in question, a notice under paragraph 3 imposes a requirement relating to any policy of insurance effected by the superior landlord—

(a) The landlord on whom the notice is served shall forthwith inform the tenant or secretary of that fact and of the name and address of the superior landlord, and


(b) That paragraph shall then apply to the superior landlord in relation to that policy as it applies to the immediate landlord.

In that event, the immediate landlord, on receipt of a request for a written summary of the insurance cover, must forward it to the superior landlord.

If the lessee wishes to inspect the policy and/or associated documents where insurance cover has been arranged by a superior landlord, the immediate landlord must inform the lessee, and must furnish the lessee with the superior landlord’s name and address.

The superior landlord must then make facilities available for the lessee to inspect the policy and evidence of payment, in the same way as the immediate landlord.

Paragraph 4A deals with the situation where there is a change of landlord:

(1) This paragraph applies where, at a time when a duty imposed on the landlord or a superior landlord by virtue of any of paragraphs 2 to 4 remains to be discharged by him, he disposes of the whole or part of his interest as landlord or superior landlord.

(2) If the landlord or superior landlord is, despite the disposal, still in a position to discharge the duty to any extent, he remains responsible for discharging it to that extent.

(3) If the other person is in a position to discharge the duty to any extent, he is responsible for discharging it to that extent.

(4) Where the other person is responsible for discharging the duty to any extent (whether or not the landlord or superior landlord is also responsible for discharging it to that or any other extent)—

(a) References to the landlord or superior landlord in paragraphs 2 to 4 are to, or include, the other person so far as is appropriate to reflect his responsibility for discharging the duty to that extent, but


(b) In connection with its discharge by that person, paragraphs 2(4) and 3(4) apply as if the reference to the day on which the landlord receives the notice were to the date of the disposal referred to in sub-paragraph (1).

Despite its density, paragraph 4A is quite logical: old and new landlords must work together to ensure that they comply with any notice served on them. The lessee does not have to start the notification process afresh, simply because his/her landlord has changed.

It may therefore be that one landlord hands over a partially completed process: for example, the old landlord may have received a notice asking for reasonable facilities to inspect the policy, but sells his/her interest before the inspection takes place. In that case, the new landlord will be responsible for ensuring that the lessee is afforded those facilities.

There is one point to bear in mind: where there is a change in landlord, the 21 day time limit for complying with a notice restarts from the date on which the landlord changes.

What if the lessee assigns the lease? Paragraph 5 covers this in one short paragraph:

The assignment of a tenancy does not affect any duty imposed by virtue of any of paragraphs 2 to 4A; but a person is not required to comply with more than a reasonable number of requirements imposed by any one person.

This paragraph appears to prevent the landlord being subject to repeated requests, although it is probably the most ambiguously worded paragraphs of the entire Schedule with its repetition of “person”. I assume that it is used to cover both incoming and outgoing landlords and lessees, but it is not at all clear.

(1) It is a summary offence for a person to fail, without reasonable excuse, to perform a duty imposed on him by or by virtue of any of paragraphs 2 to 4A.

(2) A person committing such an offence is liable on conviction to a fine not exceeding level 4 on the standard scale.

Level 4 on the standard scale is currently £2,500.00.

To my mind, this punishment does not fit the crime. If the lessee seeks disclosure of his/her landlord’s insurance policy, and the landlord does not comply with that request, the lessee is no closer to seeing the insurance policy if the landlord is convicted and fined.

For more on the availability of civil remedies and criminal sanctions, see Morshead Mansions Ltd v Di Marco [2014] EWCA Civ 96.

Paragraph 7 contains this useful power going beyond the right to look at documents, but – with my controversial hat on – I suggest may not go quite far enough:

(1) This paragraph applies to any dwelling in respect of which the tenant pays to the landlord a service charge consisting of or including an amount payable directly or indirectly for insurance.

(2) Where—


(a) It appears to the tenant of any such dwelling that damage has been caused—

(i) To the dwelling, or


(ii) If the dwelling is a flat, to the dwelling or to any other part of the building containing it,

in respect of which a claim could be made under the terms of a policy of insurance, and

(b) It is a term of that policy that the person insured under the policy should give notice of any claim under it to the insurer within a specified period, the tenant may, within that specified period, serve on the insurer a notice in writing stating that it appears to him that damage has been caused as mentioned in paragraph (a) and describing briefly the nature of the damage.

(3) Where—


(a) Any such notice is served on an insurer by a tenant in relation to any such damage, and

(b) The specified period referred to in sub-paragraph (2)(b) would expire earlier than the period of six months beginning with the date on which the notice is served,

the policy in question shall have effect as regards any claim subsequently made in respect of that damage by the person insured under the policy as if for the specified period there were substituted that period of six months.

(4) Where the tenancy of a dwelling to which this paragraph applies is held by joint tenants, a single notice under this paragraph may be given by any one or more of those tenants.

(5) The Secretary of State may by regulations prescribe the form of notices under this paragraph and the particulars which such notices must contain.

(6) Any such regulations—

(a) May make different provision with respect to different cases or descriptions of case, including different provision for different areas, and

(b) Shall be made by statutory instrument.Paragraph 7 begins positively enough – if the landlord is not quick enough of the mark in notifying the building insurer of a possible claim where there is a time limit for notifying the insurer, the lessee can give that notification in the landlord’s place.

The first time I read the paragraph, my mind raced ahead and anticipated that it was going to empower the lessee to actually make a claim in the place of an indolent landlord.

Not so. Subparagraph 3(b) make it clear that the lessee only has the power to notify the insurer – and thereby to buy six months’ grace for the landlord to actually make the claim.

To the best of my knowledge, the Secretary of State has not made any regulations pursuant to this paragraph.

The wording of paragraph 8 may ring some bells – in places it bears more than a passing resemblance to section 27A, with an indirect nod to the Tribunal’s power to appoint a manager under section 24 of the Landlord and Tenant Act 1987 too:

(1)  This paragraph applies where a tenancy of a dwelling requires the tenant to insure the dwelling with an insurer nominated or approved by the landlord.

(2) The tenant or landlord may apply to a county court or the appropriate tribunal for a determination whether—

(a) The insurance which is available from the nominated or approved insuring the tenant’s dwelling is unsatisfactory in any respect, or

(b) The premiums payable in respect of any such insurance are excessive.

(3) No such application may be made in respect of a matter which—


(a) Has been agreed or admitted by the tenant,

(b) Under an arbitration agreement to which the tenant is a party is to be referred to arbitration, or

(c) Has been the subject of determination by a court or arbitral tribunal.

(4) On an application under this paragraph the court or tribunal may make—

(a) An order requiring the landlord to nominate or approve such other insurer as is specified in the order, or


(b) An order requiring him to nominate or approve another insurer who satisfies such requirements in relation to the insurance of the dwelling as are specified in the order.

(5) [repealed]

(6) An agreement by the tenant of a dwelling (other than an arbitration agreement) is void in so far as it purports to provide for a determination in a particular manner, or on particular evidence, of any question which may be the subject of an application under this paragraph.

Unsatisfactory “in any respect”

Whilst cost and commission are in my experience the most frequently litigated insurance issues, this paragraph bestows upon the FTT a very wide discretion to determine whether a landlord’s chosen insurance policy is “unsatisfactory in any respect”.

As a rule, leases set out the bare bones of the insurance cover that the landlord is required to provide, but I wonder how the FTT would decide an application on the following facts:

• A twenty-flat block looks out over a river susceptible to flooding;
• The lease allows sub-letting;
• The landlord obtains cover which does not provide for the lessee’s loss of rent in the event of flood damage to the flat;
• The lessee queries the absence of loss of rent cover;
• The landlord obtains a quotation for loss of rent cover in the event of flood damage;
• The premium is 50% higher than the current premium;
• Ten of the lessees are prepared to pay the increased premium. Ten are not.

New insurer

Subparagraph 4 echoes the FTT’s powers to appoint a manager, but would, I suspect, be considerably less costly to run in the FTT than a fully-fledged application to appoint a manager, confined as it is to insurance alone.

The evidential issues will nonetheless concentrate the mind: the Tribunal will expect to see a draft order with the application, in the same way that it expects to see an order on the appointment of a manager.

That order will need to be clear about the shortcomings to be corrected in any new cover, and, under 4(a), requires the identification of a specific insurer.

An order under 4(b) will need to be researched – a wish list of unachievable cover is unlikely to curry favour with the Tribunal.

If an application is made under either subparagraph 4(a) or (b), I anticipate that the FTT will expect to see evidence including quotations and property-specific terms and conditions before making any order.

The Windermere Marina Village clause

Subparagraph (6) is a calque of section 27A(6) of the 1985 Act. For a detailed discussion of the operation of section 27A(6), see here (and here).

This final paragraph of the Schedule provides for limited exemptions:

(1) Paragraphs 2 to 8 do not apply to a tenant of —

a local authority,

a National Park authority, 


a new town corporation,

unless the tenancy is a long tenancy, in which case paragraphs 2 to 5 and 7 and 8 apply but paragraph 6 does not.

(2) Subsections (2) and (3) of section 26 shall apply for the purposes of sub-paragraph (1) as they apply for the purposes of subsection (1) of that section.

The Parliamentary draftsman loves nothing more than a good session of cross-referencing.

If the lessee has a long lease, the Schedule applies in its entirely except that there is no criminal sanction if the landlord:

• Fails to comply with a request to inspect the policy and/or associated documents, and
• Is either a local authority, a National Park authority or a new town corporation.

Subparagraph 2 defines “long tenancy” by referring back to the definition of “long tenancy” in section 26 of the Act.

In most cases it will be sufficient to know that a lease for a term of more than 21 years falls within the meaning of “long tenancy” here.

The draftsman has however cross-referred to section 26 of the Act because there are some rather more involved elements to the definition relating to tenancies containing covenants or obligations for perpetual renewal, and those granted by public-ish bodies.

Sometimes I ask myself why I left the travel industry. I wonder why I exchanged visits to Corsica, Mustique and Zimbabwe for trips to the courts of England and Wales on soggy November days.

Fifteen years ago, I would have put the likelihood of me willingly getting up at 5.30am on a Monday morning, to proof read and publish an article (“blog post” would have meant nothing to me then) about service charges and insurance, at about the same level as the monsoon failing to arrive in Zanzibar in March.

I understand that the rains in Zanzibar are like clockwork.

Funny old thing, life.

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