Unreasonable split of insurance costs - can I challenge?

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    Unreasonable split of insurance costs - can I challenge?

    About 15 years ago, I purchased a 2/3 bedroomed flat above a commercial property. The flat is on the first floor, and the only one in a converted building. On the ground floor in the same building, and in a single storey extension to the rear is the commercial business. Thus the flat occupies one-half of the original building, and about one-third of the total property by floor area. The owners of the business are also the freeholders, and we generally get on well.

    Before purchasing the flat, I had a series of exchanges (including faxes, letters, but only from me - a mistake in hindsight) with the business about the lease which stipulates that the flat pays 50% of the buildings insurance, and it was agreed that the flat need only pay one-third of the insurance costs, and that occurred for 11 years. However, due to a change in directors of the business a few years ago, the freeholder now splits the buildings insurance 50:50. Besides the apparently unfair split (the leaseholder is essentially subsidising the commercial business), the insurance policy also now includes clauses (such as protection due to loss of cash) that apply solely to the business.

    I have asked the freeholder that we return to the 33:67 split that we agreed 15 years ago (verbally, with a follow up letter from me). The freeholder has agreed in principle to a more equitable split. However, they have now asked for a 10k cash sum to represent loss in income over the remaining years of the lease. Is that reasonable? Or could I challenge that view in a FTT, and avoid paying any cash sum to vary the lease? And (excuse my ignorance!) but would the cost of a FTT be an expensive route anyway to resolve the matter?

    Thanks for any advice.

    The only thing that is going to matter is whether those "exchanges" you had before purpose somehow created a contract which bound the seller. By the sound of things you can prove nothing.

    The lease is otherwise of overriding importance. Reasonableness has nothing to do with it.

    FTT is not going to be at all interested in your idea that the split should differ from the lease. The fee to vary the lease is whatever they want. If you think it is a good deal you take it, otherwise you don't. FTT don't determine the fee.


      Thanks for the advice.

      I have read in other cases on the platform that there might be "an estoppel defence (that the leaseholders historically accepted the breach of the lease and therefore are now precluded from insisting on the lease provisions being enforced)." I have written invoices that clearly show the insurance costs were charged for the first 11 years at one-third of the insurance costs for the whole business.

      Does such a defence apply in my case?

      Also, it is not clear when the lease was created in relation to the building of the single storey extension. They occurred about the same time - I have a suspicion that the lease might relate only to the two storey building; and would explain the "50:50 split". Would that be sufficient case for me to make the challenge?


        Not paying service charges according to the lease (even if not acted upon by the lessor) does not estop later attempts to recover service charges correctly.

        Estoppel does not generally apply to ongoing breaches (is more relevant to a one off breach that was ignored)

        Who do you think should pay the missing part of the insurance premium (in the event that the lessor was not also the other lessee)?


          I think maybe o/p has a point if the lease pre-dates the extension.


            Originally posted by JK0 View Post
            I think maybe o/p has a point if the lease pre-dates the extension.
            If the property split did indeed happen after the lease that would certainly be an issue, but I did not take that to be the case.

            The other issue that OP raises (that the insurance may go beyond the lease in terms of what it insures) is certainly relevant.


              The only thing that matters about the split is what was agreed in the exchanges of letters and faxes and then what can now be proven about that agreement if challenged.

              If the agreement made binds the buyer of the freehold simply depends on the exact nature of the agreement and the precise wording. It's going to need to overcome the actual lease wording (and should have been disclosed by the seller in any case), so it's not going to be simple.

              By agreeing to a revised split and then seeking a fee to compensate for the change, the freeholder is essentially not agreeing to the revised split. And it would be difficult to put in place an agreement that would survive a subsequent sale in any case.

              What the insurance comprises and should cover is either in the lease or it isn't. If it's described simply as "insurance", it could probably include anything, if it's referred to as "appropriate property insurance" (or similar), the income loss clauses might be challenged - although they're unlikely to make a huge difference to the premium in themselves.
              When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
              Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).


                Just curious - say the commercial business changed from knitting shop (or whatever it is now) to ACME Dynamite manufacturer and consequently the building insurance increased by 1,000,000 % ?


                  Originally posted by rfph1 View Post
                  Just curious - say the commercial business changed from knitting shop (or whatever it is now) to ACME Dynamite manufacturer and consequently the building insurance increased by 1,000,000 % ?
                  Then the unfortunate residential leaseholder would still be responsible for 50% of the building insurance cost. It is beyond the FTT's jurisdiction if the leases already provide for 100% recovery of the costs.

                  Getting back to the OP's point about what the fee that the Landlord wants in order to vary the lease. SInce the proposed variation is of no benefit to the Landlord and the Landlord is not obliged to vary the lease at all then yes, the Landlord can request whatever fee he chooses.


                    Thanks for the discussion and advice, so far.

                    Simply to let you know that I wondered how much a Business Disruption clause might add to the overall insurance costs. I asked a broker to quote for the same property, same rental amount cover, and was returned the following figures (not the same insurer):

                    Buildings insurance only: £ 630 pa
                    " " + Business Disruption: £1,000 pa
                    Business Disruption alone: £ 440 pa

                    My lease states that only Buildings Insurance is required. Therefore, I am currently paying £500 pa, which should reduce to ~£315 pa, and which would seem more reasonable to me. I plan to raise the matter informally with the freeholder, though I think my case is strong.

                    I'll look out for ACME Dynamite, one of the risks of buying above a commercial premises I had not previously considered!


                      There is often a clause saying not to do anything that would increase the cost of insurance, so Acme's storing their products might make them in breach of the lease.


                        You definitely have a case on the insurance policy 'add-ons'. I assisted a group of leaseholders recently at FTT. They were in a mixed use development consisting of 15x units altogether (2x commercial units on the ground floor and 13x residential units on the first floor). Each of the 15x units paid £300 pa ground rent - a total of 4.5K pa.

                        Their Landlord had 96K loss of rent cover on the buildings insurance policy - representing 3 years at 32K pa. This is one of the issues that the leaseholders challenged. The FTT agreed that although the leases did include a loss of rent element, the Landlord should only be covering the cumulative ground rent x 3 years e.g. 4.5K x3 = 13.5K and not 96K! The FTT also determined that the Landlord had been wrongly covering what should have been the commercial leaseholders' responsibility - e.g. it was up to the commercial leaseholders to cover their own loss of rent.

                        A moral and a financial victory for the residential leaseholders. In respect of the latter victory, it only made a £50 pa reduction in the buildings insurance premium.

                        Whilst their lease contained a loss of rent element to the buildings insurance policy, yours might not do so. Check this first.


                          Hoping this is not a really daft question, but what does 'loss of rent' actually mean, and how and when would it occur?


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