Service Charges: Whether service charges demanded for insurance premiums were reasonable

Where a landlord insured a property for risks that went beyond those specified in the lease, were the insurance premium service charges demanded of the leaseholder unreasonable?

The background

In Okoye v Gray’s Inn Capital Limited [2025], the Appellant leaseholder held long leases of three flats within a development comprising two purpose-built residential blocks, of which the Respondent was the landlord. Under the leases, the landlord covenanted to provide certain services, for which the leaseholder was to pay service charges. The Upper Tribunal considered an appeal regarding specific charges demanded in respect of insurance premiums.

The leases defined “Insured Risks” at clause 4.2 as:

“fire lightning aircraft and other aerial devices (including articles dropped from aircraft) explosion riot civil commotion strikes labour or political disturbance theft or attempted theft malicious damage storm tempest bursting and overflowing of water or oil pipes tanks and other apparatus flood impact by road vehicles earthquake subsidence and heave landslip falling tree branches and aerials and accidental damage to underground services.”

The Appellant argued that the landlord was charging leaseholders for insurance which covered risks beyond the “Insured Risks”, claiming that the service charges in respect of insurance premiums were not reasonable as a result.

The insurance premium obtained by the landlord included:

“…damage, business interruption, book debts, property owner’s liability…”

The First-tier Tribunal (FTT) found that the charges were reasonably incurred and payable. No evidence was presented by the Applicant of alternative quotes or over-insurance, and the FTT concluded that the property was insured by the landlord for its full reinstatement value for the Insured Risks.

The decision

The Upper Tribunal (UT) dismissed the leaseholder’s appeal.

The leaseholder had not provided evidence to demonstrate that the insurance premiums would be any lower had the landlord insured only the Insured Risks. The landlord argued that the document relied upon by the leaseholder – the “Zurich Real Estate Insurance Policy Document” was generic, and not specific to the subject property.

Further “Summary of Cover” documents were also presented to the FTT by the leaseholder, which the landlord claimed demonstrated that the additional items were not insured against. These documents were not presented by the leaseholder when it had sought permission to appeal from the UT.

The UT considered the documentation, finding that the landlord had not insured against a number of the disputed items, or stated that the insured sum was “£0”. The UT concluded that the insured items appeared to be consistent with the lease. The UT considered “Property Owner’s Liability” which was not clearly listed as an Insured Risk, for which the landlord had insured to the sum of £5 million. The UT did not consider this to constitute over-charging of the leaseholders, primarily because the leaseholder had not demonstrated in evidence that it would have been cheaper to insure the building without this item.

The UT concluded that, had the “Summary of Cover” documents been available when permission to appeal was sought, permission would likely not have been granted, but they did support the FTT’s decision.

Advice and action for landlords

This is a fairly straightforward decision, turning on its facts and the insured risks stated on documents supplied by the leaseholder in the FTT.

Landlords should continue to ensure that “Insured Risks” as defined in leases are insured against, without adding further risks that go above and beyond those stated. Where further risks are insured against, leaseholders must be able to demonstrate that it would be cheaper to ensure the building without those risks in order to succeed in a reasonableness claim such as this.