Directors and Officers Insurance, is it recoverable in service charge?

[hollyhead]

A RTM Co is in place, the Building insurace covers the Directors and Officers (for Liability)
Can they recover this in the service charge or should it be a seperate cost for the RTM Co?

[leaseholdanswers]

It is, along with all costs incurred, an RTM cost. As to it being recoverable depends as always on the terms of the lease.

[ram]

Can they recover this in the service charge or should it be a seperate cost for the RTM Co?

Without going into debate on the pros and cons of Directors and Officers Liability
insurance cover, any insurance that covers the "company" is of course chargable.

But when you say should it be separate cost for the RTM Co?
The RTM co -IS- the directors and officers, and the only money available to
run the "company", is what comes in from the service charge.

If you were asking should the directors pay for their own insurance to cover
themselves, the answer is no, as if there was no company, there would be no directors. The Company officers are covered.

But, you could ask why they need insurance, as they deemed they could do a better job than you, therefore they should be more conversant and more capable ,
therefore insurance should not be required for such learned, experienced directors.

( for people reading this - I know some of the background )

P.S. We don't have that type of insurance here, as we can read. ( the rules )

[animal]

It is, along with all costs incurred, an RTM cost. As to it being recoverable depends as always on the terms of the lease.

Sometimes the Articles of the Company include a liability for company expenses.

[Tulula]

Correct, but their liability to pay is as shareholders or members of a company, not as leaseholders - so it's not a service charge. I know that sounds pedantic but it can make quite a difference, not least because as a company expense it's not covered by the same statutory protections as a service charge.

[leaseholdanswers]

I don't think that is pedantic but making a crucial distinction.

As some will know, articles that allow expenses and recovery have been challenged on the basis that they amounted to a service charge, and subject to the statutory scheme.

In the case of what are clearly company expenses, which are unlikely to have been contemplated in the leases, many predating the RTM option, they are unlikely to be considered as a service charge in the event of a challenge.

On a side note I was looking at this a few weeks ago. I was amused to see an LVT panel saying that the Annual return fee was reasonable. There is not much choice when its a statutory fee ! Even more amusing was the panel that felt that DOI was not necessary as the agents PI would cover the Directors and Company.

[Tulula]

As some will know, articles that allow expenses and recovery have been challenged on the basis that they amounted to a service charge, and subject to the statutory scheme.

The landlord company succeeded in its claim that the sums were company expenses though didn't it? Unless that decision has been overturned or superceded.

[animal]

The landlord company succeeded in its claim that the sums were company expenses though didn't it? Unless that decision has been overturned or superceded.

Not quite. If you're thinking of moorshead mansions, the claim that failed was under company law and the Judge explicitly stated that the outcome might have been different if the claim was under L&T act.

[Tulula]

Yes, thanks, that's the one. I've been meaning to read the full decision for a while now but not quite got around to it.

[leaseholdanswers]

The landlord company succeeded in its claim that the sums were company expenses though didn't it? Unless that decision has been overturned or superceded.

I was trying to be generalised in my comment as it depends on the wording of the articles and the services in question as well as Morshead but see animal has answered in far fewer words than I would have !

In the case of the OP, I believe that they are not a member of the RTM, and that the articles for the RTM, as so many do not, will not have a mechanism for its own expenses to be recovered and have very limited liability under the guarantee.

[Geoffrey]

LON/00BK/LSC/2007/ 0193. 4 September 2007

Burnham Court Ltd charged directors' insurance to the service charge, the RMC was challenged and the tribunal decided that the lease didn't allow the company to charge directors' insurance to the service charge.

This was an important principle because only 50% of the flats were in the RMC. The rest were tenants who were being forced to insure directors against losing an action against them!

See also http://blog.rosettaconsulting.com/ Service charge disputes.

[Tulula]

That case is a little unusual in that the RMC is actually an RTE company and so is in fact the landlord. Not all leaseholders participated in the enfranchisement, and those that didn't have a different insuring clause in their leases than those that did. Each case turns on the facts.

[solanoah]

Is service charge demand a notice?

there is a current case at the FTT in which the respondent is arguing that a service charge demand is not a notice.

sorry, this may be the wrong pls but I need an answer ASAP

[Milhouse]

Directors and Officers insurance is often included 'free' as part of buildngs insurance for RTM Companies, it is for our RTM Company, I am sure they build it into the overall cost however it's declared as a free addition therefore there are no issues regarding recovery. If you obtain specialist RTM insurance there will be no problem.

Our lease thankfully also includes insuring the employees and officers of the management company as a service chargeable item, if you carefully read the insurance clause in your lease you may have this extra protection.