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Octagon Overseas Ltd and another v Cantlay and others [2024] UKUT 72 (LC)
Long leases commonly require the freeholder to procure buildings insurance, with the costs of that insurance usually being recoverable from the leaseholders as a service charge. In larger policies, the insurance company may offer a commission to the landlord in exchange for services provided by the landlord (e.g. claims handling; insurance revaluations) but which are of commercial value to the insurance company. These commissions often take the form of a proportion of the costs of the gross insurance policy being returned to the landlord: see generally, Southwark LBC v Williams (2001) 33 HLR 22. These payments have proved controversial in recent years, with the FCA introducing new reporting requirements and the Leasehold and Freehold Reform Bill proposing radical reform of the area.
Pending reform, however, the Upper Tribunal has given guidance on how leaseholders can challenge insurance commissions under s.19(1), Landlord and Tenant Act 1985 This provides that a service charge is only payable to the extent that the underlying cost was reasonably incurred.
The appellant companies were landlords at a large mixed-use development in London. They retained agents who, in turn, worked with insurance brokers to procure insurance. The gross cost of that insurance was then charged to the residential leaseholders as a service charge. The insurance company paid a proportion of the insurance cost to the brokers who, in turn, paid a further proportion to the agents. The leaseholders contended that the sums paid to the agents was unreasonably incurred. The FTT found the commission payable to the agents was not contractually recoverable under the terms of the leases and reduced the commission payable to the agents to zero.
The Upper Tribunal allowed an appeal. The FTT’s interpretation of the leases had been wrong. Further, given that the FTT had accepted that the agents performed work of value, it could not be right that nothing should be payable to them in respect of that work. The total commission claimed was around £1.5m over a 10 year period. The evidence supported a fee of around £500,000 over that period and the Upper Tribunal determined that much was due.
A link to the case may be found here.
Justin Bates KC appeared (with David Halpern KC) for the appellants.
Mattie Green appeared (with Jonathan Upton) for the respondents.
