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Insurance obligations in a lease

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Whether insurance costs of a whole building were recoverable by the landlord.

The background

In Atherton & Ors v M B Freeholds Ltd [2017], leaseholders were obliged by their leases to insure their own flats. The landlord had also insured the whole estate, including the common parts of the estate and the individual flats. The landlord wished to recover the costs of its insurance from the leaseholders.

The tenants had insured their flats, but instead of insuring in joint names, they had simply noted the landlord’s interest on their policy. The landlord insured the whole building in its sole name.

The decision

The Upper Tribunal held that tenants were in breach of covenant, having failed to insure in joint names. The landlord was therefore entitled to insure at the tenants’ expense, but the Court undertook a review of the meaning behind the leases’ terminology before reaching its conclusion referring, as is often the case with lease interpretation, to Arnold v Britton.

The Court decided that the landlord was not able to recover the full costs of its insurance, as, according to its interpretation of the lease terms and owing to the fact that it had insured in its sole name only, it could only recover the costs of insuring the common parts of the building, together with the costs of remedying any tenant’s failure to insure its individual flat.

Advice and action for landlords

This case addresses a number of issues, in particular that of double insurance and the interpretation of lease provisions. Notably, tenants were held to have been in breach of lease obligations by only noting the landlord’s interest on the policy rather than insuring in joint names, but the landlord could nevertheless only recover the costs of insurance it was obliged to arrange.

Landlords are advised to ensure that leases clearly define those parts of a building for which each party is responsible to insure; where leaseholders must insure their own properties, landlords may be satisfied to be noted on their policies but must be aware that their own recovery of costs will extend only to the common parts and structure of the building.

Landlords must ensure that leases clearly define those parts of a building for which each party is responsible to insure, ensuring there is no cross-over and clear requirements as to noted interests.

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